Rate Dip Continues On Surprise Fed MBS Plan

Yesterday rates set new record lows after the Fed’s rate policy statement. Investors piled into mortgage and Treasury bonds/notes after the Fed surprised markets by saying they’d buy more mortgage bonds (MBS) starting October 3.

I explained the Fed’s plans in simple terms. I also said that the rally was extreme, and might not hold medium-term. But the rally continues definitively today with the FNMA 30yr 3.5% coupon +53 basis points, so rates are stunningly low.

Still, I hold to this statement from yesterday:

So if you’ve been rate shopping, be aware that today’s levels may correct in the coming days, and this is a very good time to lock.

But even if rates come up a bit as mortgage bond prices come off these nosebleed levels, the economic fundamentals noted/linked above still support very low rates.