Mortgage Bonds are following through from yesterday's rally as the tapering talk tapers off. The 3% coupon hit a more than 52-week low yesterday morning and has now surged higher by almost 100bp. Also supporting Bond prices today was tame inflation data and a fall in consumer spending.

The Commerce Department reported this morning that Personal Spending in April fell by 0.2% versus the 0.1% expected due to a drop in demand for energy and slower sales for autos. Personal Incomes were flat while the April Core PCE was unchanged as inflation continues to remain tame. Year-over-year Core PCE is running at 1.1%, well below the Fed's upper end target of 2% and just above the all-time low. The personal savings rate was unchanged at 2.5% and remains near a five-year low.

Later this morning the markets will receive manufacturing data from the Chicago PMI at 9:45am and Consumer Sentiment at 10.

With the recent fall in Mortgage Bond prices, home loan rates have hit the highs not seen in a year. Freddie Mac reported yesterday that the average 30-year fixed conventional rate was at 3.81%, but to obtain that rate a borrower would have to pay 0.7 in points and fees.

Technically, Mortgage Bonds seem to be stabilizing at the current levels as the lower prices have lured in buyers. We had switched to Floating in Wednesday's Closing Technical Signal after the market closed and recommended floating yesterday morning and we will continue that stance this morning.

However, remember that volatility still remains in the markets and sentiment can quickly reverse downward at any moment, which would prompt us to switch to locking. Please stay tuned today and every day during the trading session to keep on top of the markets.