Mortgage Bonds opened lower, but quickly reversed higher into positive territory after weak economic data hit the wires.

Inflation at the consumer level remained tame in April as the Consumer Price Index (CPI) fell by 0.4%, below the -0.2% expected led by lower prices at the pump. The -0.4% drop was the lowest rate in four years. The year-over year CPI fell to 1.1%, the lowest level since November 2010 and well below the Fed's target of 2%. When stripping out volatile food and energy, Core CPI rose by 0.1%, below the 0.2% anticipated while the annual rate slipped to 1.7%, down from 1.9%. Inflation is non-existent - in fact, prices are deflating, which gives the Fed cover to keep printing. If prices recede further, the Fed will keep QE3Unlimited rolling regardless of the chatter calling for its ending.

Housing received some mixed news this morning with Housing Starts declining by 16.5% in April to 853K units annualized and below the 970K expected due in a large part to a drop in apartment building activity. Single family starts fell 2.1% while multi-family starts plunged by 38%. On the flip side, Building Permits, a sign of future construction surged by 14.3% to 1.017M units, well above the 950K expected. The report as a whole was a bit disappointing.

The job markets also received some bad news as Weekly Initial Jobless Claims rose by 32K to 360K, the highest level since late March and well above the 330K expected. One bad reading doesn't make a trend - but we need to pay close attention next week to see if this number gets revised higher and/or if the following report is bad as well.

The Fed banter continues today. Boston Fed President Rosengren said that the easy money policies are currently appropriate while Dallas Fed President Fisher said that bad fiscal policy is hurting the economy and that the buying of Mortgage Bonds is not only excessive, but potentially disruptive. Rather than listen to each of the Presidents - focus just on what Chairman Ben Bernanke says on the subject. We still feel that QE Infinity will run until mid 2014 at the very least.

In the short-term cautiously floating your rate is advised. If you're in Ohio and need advice as to where rates are and where they may be headed contact me directly @ thoward@mtgcapital.com.