“We are being told that our central bank is going to do everything in its power, including taking extraordinary measures if necessary,” said Walter Gerasimowicz, chief investment officer of Meditron Asset Management
On that news, stock prices soared on Friday. The Fed indicating that they will do whatever it takes to get the economy back on track is not at all surprising news. However, after a string of bad news and weak prices, the reassurance was just what investors needed.

Bonds and Mortgage Backed Securities (MBS) felt the brunt of this optimism and prices fell. Investors turned from long term secure instruments and moved into riskier and potentially more profitable stocks. Even with the big swing on Friday, bond prices are at all time highs. This corresponds to low rates, as bond prices and yields move in opposite directions.

As we close out summer and move into fall, the economy is struggling along. We had a burst of good news in the spring, but it was overshadowed by concerns in Europe. Now we have talk of double dip recession in the US and our anemic housing market is an anchor on our overall recovery.

This week economic reports focus on consumer confidences, spending and sentiment; payrolls and unemployment; and monthly auto sales.

After a long period of upward moving prices, long term trends indicate bond prices are due for a correction. We will see if the optimism in stocks spawned on Friday will carry through this week and start us on an upward trend or if it was a short lived rally. If stocks continue to perform well, look for mortgage rates to steadily increase. We may move from “ridiculously low” to “low”.

Click for a glossary of the highlighted words
Subscribe to the daily “Market at a Glance” or the Weekly “Mortgage Market Update”
Archive