Mortgage bonds continue to trade within a tight range, as markets look for direction from the stock market. Although stocks are trading higher in early morning trading, there are the 25- and 200-day moving averages just above current levels. This means we will likely see stocks stall out here at some point today, as there isn’t likely enough good news to push stocks above the multi-layer ceilings. This could present an opportunity for mortgage bonds to improve, as many investors will temporarily shift money out of the stock market and into mortgage bonds. However, we still aren’t out of the woods. Stocks could make a strong come back in the days or weeks to come, which would likely drive mortgage interest rates to set new multi-year highs.
The consumer price index (CPI) for the month of October was reported this morning, showing a year over year increase in overall consumer inflation from 2.3% up to 2.5%. However, after adjusting for food and energy prices, the Core rate fell from 2.2% down to 2.1%. Since both components of the report came in as the market anticipated, there was very little reaching in the bond market. This is good news considering that tariffs are driving more products being produced here in the US, which is generally more expensive than products produced in China. If the production prices in the US continue to climb higher, we can anticipate that will eventually lead to higher prices charged to the consumer. Overall, tariffs are inflationary and not friendly to mortgage interest rates.
With mortgage bonds having room to improve, there is no need to immediately lock. However, we need to be careful of the longer-term outlook. If stocks can muster a strong relief rally, that will come at the expense of mortgage interest rates.