Hurry up and wait seems to be the name of the game as mid-term elections take center stage. Light volume is in vogue with the 30 year bond the only place on the curve that is seeing much action (up 42/32’s). 10 year notes are up 9/32’s and sliding down the curve, 5 year notes are unchanged. Big time curve flattening is today’s trade.
Election day expectations are huge for the Republicans. Both the Rothenberg and Cook Political Reports are predicting 50 House seats will be turned over to the Republican party. 39 are needed to take control. If true, we can expect gridlock in the coming months as the split (House/Senate) will create an environment unable to find common ground on fiscal policy. This is assuming the Dem’s hold the Senate.
The Fed Open Market Committee (FOMC) started its two day meeting this morning, apparently hashing out what to do to re-inflate the economy and create jobs. QE2 will most likely be the outcome, with 500 billion expected to be pumped into the system over the next two quarters. Most expect the Fed to leave the total amount of purchases “open,” allowing for dollar amount changes to be made depending on economic strength. No doubt the next two days will be high drama and volatile.
We see all of the above “baked into the cake.” In other words, it’s already priced into the market. Our bias is for stocks to slip a bit, post election and mortgage backs to hold steady. Currently, the 10 year is up while mortgage backs are unchanged. Best bet for Austin mortgage borrowers is to be conservative/cautious with locking your interest rates as the political news will be tomorrow morning’s early trade.
