26 Sep Bonds Show Strength
After facing a difficult day in the market yesterday, mortgage bond are holding their ground so far this morning. Because bonds were able to at least stay above their 100 day moving average, this is a very strong technical move. There is a nice upward trading channel forming on the bond charts. If this channel has the strength to help bonds break above their 50 and 25 day moving averages, we will see mortgage interest rates pressured lower. If bond prices fail to break above these critical levels, we will then see upward pressure on mortgage rates. It’s too early to predict which way things will go. In a world where a single Tweet can reverse the course of the markets, anything is possible. As pressure heats up on President Trump, I expect to learn of continued progress on the trade war with China.
The third and final look at GDP for the 2nd quarter of 2019 came in at 2.0%, which was in-line with what the market had anticipated. The Consumer Spending portion of the report was very strong, which has been influenced by the amount of equity consumers have pulled from their home equity in recent months to make purchases that many will take 30 years to pay off. However, since the 1st quarter GDP was reported at 3.1%, the trend is clearly slowing. Although we are a long ways off from being in a recession, the lower GDP numbers are a bit of a warning sign. Spring and summer are generally stronger months, which clearly didn’t happen this year.
If mortgage bonds are able to make a decisive break above their 25 and 50 DMA, we will switch to a floating bias. However, until this happens, locking remains the safe play.