Mortgage Bonds Higher

Mortgage Bonds are higher and following through on yesterday's rally - this ahead of today's $37B 3-yar Note auction at 1:00 ET. Traders will be gauging the appetite for this offering, especially by foreign countries.

Helping give bonds a lift was some good news on inflation. The labor Department reported today that worker Productivity in the 2nd quarter rose to 6.4%, higher than the consensus of 5.5% rising at its fastest pace in 6 years as companies cut costs and try to maximize output from their current staff. The efficiency gains help to curb inflation and as all know, low inflation is good for long-term Bonds like Mortgage Bonds. Unit Labor cost fell at a 5.8% pace versus estimates of -2.5%, the second consecutive drop and the biggest since 2001. This is also good news on the inflation front.

Today the 2-day Fed Meeting begins, with the statement to be released at 2:15pm ET tomorrow. We all know the Fed is not about to raise rates tomorrow, but will they hint about a future rate hike and will it be sooner or later? Stocks have been enjoying a rally higher sustained by a lack of investment alternatives. Have you checked available rates in your savings acount lately? They are near zero and can influence many people to place those dollars in the Stock market as they search for higher returns. But should the Fed take away the "punch bowl" and the low rate party comes to an end, Stocks could suffer and Bonds could benefit.