MBS Day Ahead: Is a New Inflation Framework Good Or Bad For Rates?
Posted To: MBS Commentary
If you don't want to read to the end to get the answer posed in the headline, here is a spoiler: Yes, a new framework is both good and bad for bonds. It's good because the things the Fed must do in order to promote inflation are generally good for rates in the short-to-medium term. This includes keeping the Fed Funds Rate low and buying Treasuries/MBS, among other things. It's bad because the things the Fed must do in order to promote in order to promote inflation are generally good for the economy. A stronger economy can support higher interest rates without the need for Fed intervention (eventually). On a related note, inflation itself is the enemy of low interest rates (because bonds return a fixed stream of payments based on today's dollars, so if those dollars become less…(read more)