Hey – Is Inflation Bad for Me?

Nothing impacts bonds more than inflation – not even the Fed – and today’s Producer Price Index number, up 1.1% when .6% was expected, has been very bad for bonds. The core PPI, which is the prices paid to US producers exclusive of food and energy costs, was up .2%, exactly what was forecast. Because bonds are fixed-rate investments, inflation is the greatest threat to their value. When inflation rises, it erodes the return on bonds. Right now, inflation is seen as rising – and it probably is rising – so that’s putting pressure on bonds. Bond rates and mortgage rates move together, loosely, so when bond rates rise, mortgage rates go with them.

One note here – if you already own a house, inflation is not necessarily your enemy. Your house value rises at least with inflation, and usually a bit better than that, and while a 5% move in gas prices takes a gallon from $3.00 to $3.15, it takes the value of your $250,000 house to $262,500. Maybe you’ll end up spending an additional 12 grand on mayo and hot dog buns this summer, but I doubt it. There’s no news so bad that there isn’t something good to be made out of it. Just keep that in mind.

30-year mortgage rates are hovering at 5.875%, still well below historical norms, but up from last week. Rates have risen the last couple of days. However, just to point out the use of this service, one of our clients yesterday hit his rate target of 5.5%. We had that rate (in his specific situation) for about an hour, and because we were watching (and had been since roughly the first week in February), we got the lock down. We can do this for you, too, and for anyone else you know and care about. Just hit us back and let’s talk.

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