Pay close attention to what Bob Ashby says here:
Mortgage bonds have been rallying since Bhutto was killed yesterday, all due to uncertainty about who will take control of the nuclear power there. As is typical with uncertainty, there is a "flight to quality" which means bonds, including mortgage backed securities, benefit even when the fundamentals are lacking.
Is it madness? Not really, just temporary insanity.
Thursday, I changed my recommendation to float all loans for this reason:
Expect a flight to safety (READ: Treasuries) from riskier assets. Mortgage bonds should benefit from this flight to safety trend during the Pakistan situation. This could very well improve mortgage rates in the near term. Be prepared to act quickly as this volatile situation changes.
What's wrong here? Most of my readers know that Robert Ashby and I are almost always reading from the same sheet of music. Who's right?
Both of us are. I said to "be prepared to act quickly" which means you need to keep checking back. As quickly as rates improves, they will reverse course and start rising again. It could happen tomorrow (Dec. 31) or on Wednesday (Jan 2) or soon thereafter. The anarchy in Pakistan is driving the lower mortgage rates. When that's seems stable, it's time to lock.
Keep checking back.
