21 Aug Bonds Holding Bottom of Channel
Mortgage bonds are hugging the bottom of their trading channel, as the strength of the stock market weighs on the bond market. Hopefully the floor of support will hold, and mortgage interest rates will maintain within the range they have stayed within for several weeks. If stocks do force bond prices lower, we will see mortgage interest rates take a step higher. Since a breakthrough is the exception and not the rule, mortgage bond pricing should hold. Let’s cross our fingers and hope.
Later this afternoon, the Federal Reserve’s Meeting Minutes from the 7/31/19 meeting will be released. All eyes will be looking for hints as to what direction the Fed is likely to take in the near future. Most are expecting to see another cut when the Fed meets next, which again is a sign that many believe the US economy is weakening. Supporting this concern is a statement from President Trump that he is considering a payroll tax cut to help stimulate the economy. Since he has always stated that the economy is super strong, this is a hint that he may not believe this rhetoric any longer. This will be something to watch.
Given the weakness in the bond market, floating comes with risk. However, since bonds are likely to hold their channel, if you float, do so carefully.