The Federal Reserve dialed back its outlook on the economy this past week and stated that they are unlikely to raise interest rates more than twice in 2016. Short-term interest rates were left untouched, which stoked the stock market and also led to lower yields on both the 2- and 10-year Treasury notes.
The challenge for the Fed is trying to balance these disparate elements: an anemic economic recovery, an improving job market (though with not much wage growth), and the ongoing global economic uncertainty.
With the stock market experiencing several good weeks of trading, the fear of a recession has diminished. Low-to-negative interest rates have further increased risk-taking. The 10-year Treasury note continues to trade well below 2.00% at 1.890%.
Technically, mortgage bonds continue to trade against resistance and we are biased towards floating interest rates at these levels. We are vigilantly watching the 2-year and 10-year Treasury note in the event that interest rates suddenly rise.