Current Trend Direction: Higher

Risks favor: Locking Bias

Current Price of FNMA 5.5% Bond: $99.47, -22bp

Out of the Zone!!! This morning, the Personal Consumption Expenditure (PCE) Index was reported at 0.2% for the month of November, pushing the year-over-year core rate to 2.2%…and outside the Fed’s target zone for core inflation of 1 – 2%. Although some Fed members felt a larger cut to the Fed Funds Rate was needed – this report underscores the wisdom of sticking to a .25% cut…and may take a cut in January off the table altogether.

Bonds had opened lower in advance of this morning’s news, and now have slid even further to the downside. This makes yesterday’s alert to Lock very well timed. It also reinforces the need to stick to a systematic approach that weighs risk against reward. We know we may occasionally miss out on some small gains, but it is more important to protect against large losses.

The November Personal Income and Spending Report revealed a negative personal savings rate, showing that consumers spent more than they earned. Personal Income rose with a 0.4% gain, a little less than consensus estimates of 0.5%, but Personal Spending jumped to a 1.1% gain, significantly greater than the consensus of a 0.7% rise and its largest increase in over three years. Overall, the healthy spending number shows the consumer is still alive and well…but perhaps at the expense of savings. This is a great talking point to use with clients during and after the holiday season, as you encourage mortgage strategies that will help them manage their debt more wisely, and save for their future.

Bond Prices are presently testing support at the 25-day Moving Average. Hopefully you acted on yesterday’s Alert to Lock, and protected your pipeline. With the markets having an early close on Monday and full closure on Tuesday in observance of the Christmas Holiday, we’ll be back with our next Daily Update on Wednesday morning, December 26th. We have enclosed below, the next issue of By the Numbers