There was not much to report on the economic front this past week with most of the reporting focused on inflation. Inflation remains tame as evidenced by the Consumer Price Index (CPI) report released this past Thursday. The March Consumer Price Index (CPI) rose 0.1%, below the 0.3% expected. The Core rate, which strips out volatile food and energy, also rose by 0.1%, below the 0.2% estimated. Gas prices were higher last month, offset by lower costs for clothing, furniture and used cars, while the cost for housing, medical care, and cigarettes edged higher. Stocks continue to trade well and have gained back all of their losses from the beginning of the year.

The unintended consequences of negative interest rates have been front page news with the German 10-year bund reaching zero yield. Negative interest rates are challenging for pension funds and insurance companies. The inability to return adequate returns is forcing some European insurance companies to raise additional capital. Where this all leads to should be interesting as the prospect of negative rates is real and will force investors into buying riskier assets.

Here in the U.S., interest rates remain at historical lows. However, even given the higher yields in the U.S. versus countries such Germany or Japan, and the potential for our interest rates to go lower, we remain biased toward locking in interest rates at these low levels.

There’s not much to report this week by way of economic news. Interest rates globally remain at historical lows with the German 10-year bund nearly approaching zero earlier this week. Here in the U.S., interest rates remain very attractive.

On Thursday, Fed Chair Janet Yellen expressed her belief that the U.S. economy remains on solid ground and that the Fed may raise short-term interest rates later this year. Technically, mortgage bonds are near the 52-week highs and the 10-year Treasury Bond continues to trade well with a current yield of 1.71%. Though it’s possible interest rates could decline further, we are biased toward locking in interest rates at these levels.

Each new first week of the month brings us the U.S. jobs report, and this week brings good news.  New job creations came in a touch above expectations with 215,000 jobs created in March, above the 200,000 expected.

Within the report, the unemployment rate rose to 5% from 4.9%, the U6 number was 9.8% from 9.7%, and the Labor Force Participation Rate (LFPR) rose to 63% for the first time in two years.  The uptick in both unemployment and LFPR was a result of more people entering the labor force, but unable to find a job.

On a macro level, experts are debating how long can the U.S. be insulated from and continue to outperform the rest of the world.  The resiliency of the U.S. consumer and economy is second-to-none, but, in our highly interconnected world, it’s plausible to think the U.S. could experience some road bumps later in the year.  It’s open to debate how bonds and interest rates will react. There are also questions as to which tools the world’s central bankers can use to effectively stimulate the global economy.

U.S. bonds continued to trade well this week as seen by the 10-year treasury note current yield, currently <1.800%.  Technically, 30-year mortgage bonds are trading at resistance levels and we would not be surprised if interest rates moved higher in the U.S. given the ongoing positive economic data we’re seeing.

The Federal Reserve dialed back its outlook on the economy this past week and stated that they are unlikely to raise interest rates more than twice in 2016. Short-term interest rates were left untouched, which stoked the stock market and also led to lower yields on both the 2- and 10-year Treasury notes.

The challenge for the Fed is trying to balance these disparate elements: an anemic economic recovery, an improving job market (though with not much wage growth), and the ongoing global economic uncertainty.

With the stock market experiencing several good weeks of trading, the fear of a recession has diminished. Low-to-negative interest rates have further increased risk-taking. The 10-year Treasury note continues to trade well below 2.00% at 1.890%.

Technically, mortgage bonds continue to trade against resistance and we are biased towards floating interest rates at these levels. We are vigilantly watching the 2-year and 10-year Treasury note in the event that interest rates suddenly rise.