Rate Watch 2-2-2009

Mortgage Bonds continue to be volatile. Cautiously Floating:
Personal Consumption Expenditure (PCE) index reporting its smallest gain in five years, the argument of inflation being a threat to the economy has taken a back seat for now.
The bigger topic for the moment is the threat of deflation in the future. Why is deflation considered worse? Deflation kills the over-all economy and there is no incentive to spend today because prices look to be cheaper in the future. This mindset can destroy product sales and add to the already dismal amount of job losses. If deflation takes hold, the fear is that it can lead to a devastating economic cycle.
Supporting the deflation argument is that both Consumer Spending numbers fell again for the sixth consecutive month and personal incomes fell right along with them. The only small silver lining that exists is that Americans boosted the savings rate to 3.6% of their after tax incomes in December.
Mortgage Bonds continue to be volatile.