Bonds Unable to Sustain a Rally

Bonds Unable to Sustain a Rally

Chances of a trade war between the US and China escalated again yesterday, with President Trump threatening another $200 billion tariff. This extreme move was again met by further threats of retaliation from China.  If this battle continues, we should see mortgage interest rates improve over time. However, it will take significant strength in the mortgage bond market for prices to break above their 100 day moving average. That’s where the real improvements can be realized.
Although stocks are down sharply, mortgage bonds are receiving only a minimal benefit. They have at least temporarily broken above their 50 day moving average. With the 100 DMA just above current levels, bonds aren’t able to sustain a rally.
Given the continued lack of progress in the bond market, we will maintain our locking bias.