Maret Update June 15, 2997

Current Price of FNMA 6.0% Bond: $98 .62, +28bp

Mortgage Bonds are rallying sharply higher this morning. The reversal from the floor we had identified is continuing in full form, and adding even more favorable technical signals by way of a positive stochastic crossover.

Giving Mortgage Bonds some additional help, is the tame read on Core Consumer Inflation. The Core Consumer Price Index (CPI) for May was reported today at 0.1%, which was lower than expectations of 0.2%. Additionally, the year-over-year Core CPI dropped to 2.2%, which is the lowest read in more than a year, and is moving closer to the Fed's target zone for Core Inflation of 1 - 2%. Since inflation erodes the buying power or value of the fixed return that a Bond provides, the news of inflation moving lower is very good news for the Bond market.
And the tame inflation reading is even helping Stocks. In recent days, Stocks had been selling off on the fear that interest rates were going to rise - which could hurt Stocks, as higher rates make it more expensive for businesses to "do business". But after seeing this morning's tame Consumer Inflation read, Stock traders started buying with both fists, driving Stock prices higher this morning as well. Maybe stock traders are seeing a peak in interest rates too. Where's Bill Gross?

Aside from the big headline news of the Consumer Price Index, there were a few other reports released, but their importance and impact paled in comparison to the welcome read on lower inflation.

David Kosmecki
http://www.americanstar.com