29 May Don’t take your eyes off the market
Mortgage bonds continue their climb higher today, passing by the 25 day moving average. There is an upward channel clearly in place. As long
as bonds continue to follow this channel, mortgage pricing will improve. If bonds are able to break through just one more resistance point, they
will then have a free ride up to their 50 DMA. That would be a great sign in the short term for mortgage interest rates. However, they
will be met with stiff resistance that could cause bonds to either drop lower or move sideways out of the current upward channel.
This morning we received the Preliminary or second reading on GDP for the 1st quarter of 2015. Although it came in at -0.7%, that number was actually
better than the -1.0% expected. However, this is a terrible reading and a big revision from the first reading of +0.2%. It’s important
to remember that the first quarter is typically lower due to seasonal adjustments. However, it points towards closer to a +2.0% year over year
reading, which is still very low. In fact, given the current economic readings, GDP could continue to show an overall weakness in the economy.
This will make it difficult for the Fed to raise rates anytime soon.
As long as bonds continue to ride their upward channel, we will maintain a floating bias. However, if you choose to float, be careful not to take
your eyes off the market. As always, sentiment can quickly reverse.