Monday, October 6, 2008

Rate Watch 10/6/08: Floating

Stock markets world wide are in negative territory overnight as the $700 Billion bailout plan is looked at as less than a cure all to the financial problems in the United States. As I have mentioned before, the bailout will help us to recover in 12-18 months, as compared to a recovery in 4-5 years without it. Financial markets are in a mess, with or without the Bailout package. Bonds are benefiting from the movement of money out of the stock market into Bonds. Currently, Stocks are currently off 350 points. The Federal Reserve Bank is pumping liquidity into the market (one of the biggest problems our loan world is experiencing) with their Term Auction Facility, doubling the amount available from $450 to $900 Billion. If there could be a Rate Cut Coordination with other World Banks, we could see some bigger benefit in the mortgage market. As it stands right now, bonds are showing a 84% chance that the Fed will lower the Fed Funds rate by .5% when they meet on 10/29. Remember last month, there was a 100% prediction in the market that the Fed was going to lower the discount rate and they held the rate the same! So much for trying to predict the Fed moves, right?! On the technical side, the 25 day moving average is a solid floor below and the overhead resistance is at 101.31 (current 5.50% trading at 100.88). For now I recommend floating as we watch to see if we can get some additional improvement in the Bond Market.

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