14 Apr Great day to lock!
Mortgage bonds moved from being at the bottom of the sideways channel yesterday morning to the top of the channel this morning. The move higher
today was spurred by a weak Producer Price Index (PPI), which measures inflation on the wholesale level. The reading for March showed an increase
of 0.2%, with a Core Rate (which strips out food and energy) also at 0.2%. Both figures were in line with estimates. However, the year over
year Headline CPI dropped from -0.7% to -0.8% and Core decreased from 1% down to 0.9%. Although wholesale inflation doesn’t always translate into
consumer inflation, it is still showing an overall weakness in price movement. Therefore, it adds speculation to a lower Consumer Price Index report,
which we will receive on Friday.
After three negative readings, Retail Sales were up 0.9% for the month of March. Although better than recent months, it was still lower than expectations
of 1.1%. When stripping out autos and gas, sales were up 0.5%, which was slightly better than the 0.4% expected. Overall these are still
dismal Retail Sales figures and are not showing overall health in our economy. Many economists predicted a surge in Retail Sales as a result
of lower prices paid at the gas pumps. However, the minimal savings has not proven to be a major factor in boosting consumer purchases.
With bonds now at the top of a sideways trading channel, the safe play will be to lock in the recent gains. We will have to wait and see if Friday’s
Consumer Price Index report will show a level of continued weakness in consumer inflation that will help boost bonds above the resistance levels that
have held rates back from improving since early February. That could be the catalyst needed to improve mortgage rates in the near term, or send
rates higher. We will have to wait and see.