12 May Cautious float
Weaker than expected inflation and Retail Sales data has pushed mortgage bond prices once again above their 50 and 100 day moving averages. Volatility within bond prices has been elevated lately, with prices moving above and below critical levels without experiencing much resistance at times. Overall, volatility is not a good sign within any market, as it tends to show a level of uncertainty held in the minds of investors. When this happens, institutional lenders and day traders exaggerate movements with preset trades to buy or sell to take advantage of quick profit opportunities. Although a good thing for those making the money, it creates a level of uncertainty for those needing to make decisions on locking an interest rate. Greed often keeps people waiting too long, and then the panic forces the decision to lock as prices make sharp downward movements. This creates an unhealthy environment for the masses.
Consumer inflation via the Consumer Price Index was reported this morning, showing that inflation only increased by 0.2% in the prior month. Although still a healthy increase, this month’s report caused year over year rates to move down to 2.2% from last month’s reported 2.4%.
Retail Sales were also lower than anticipated, coming in with a month over month increase of 0.2% compared to the market’s expectations of 0.4%. The year over year rate also dropped from 2.0% down to 1.9%.
Overall, these numbers fell short of expectations, and are partially the reason mortgage bond prices are higher this morning.
With bond prices now above their 50 and 100 DMA, there is no need to immediately lock. We suggest watching the markets closely and floating as long as prices continue to climb.