Bonds Still Under Pressure

As stocks continue to recover their losses from earlier this week, mortgage interest rates continue to be pressed higher. With just one day until we receive the Bureau of Labor Statistics’ report on the strength of the labor market in the month of November, volatility in both the stock and bond markets will likely remain high today. From a technical perspective, this is currently favoring stocks and placing mortgage bonds at a disadvantage. However, from a logical perspective, the news is likely to favor mortgage bonds over stocks. The market is anticipating further slowing in the overall health of the labor market, which is a reason for stocks to pull back and mortgage interest rates to improve. But the lack of rational behind the current markets is actually having the opposite effect on both markets. At risk of sounding like a broken record, eventually this market will catch up to itself and we will see a correction. It’s only a matter of when.

One key indicator of a recession that is rarely talked about is the level of consumer debt on the books.  There is an unprecedented $250 trillion of consumer debt out there, which I believe is growing at an unsustainable pace.  The eerie thing to consider is that the last time individual consumer debt was as high as it is today is just before the great recession of 2008.  I believe that when the US economy falls into a recession, we are going to see large amounts of consumer debt defaults.  If this occurs, it will have a significant impact on the level of spending the average consumer holds, which will push our economy into a deeper recession.

With mortgage bonds trapped beneath significant ceilings of resistance, we will maintain a locking bias.