13 May Little benefit to float
Mortgage bonds started the day on the down side, but bounced higher after hitting support of the 25 day moving average. This support has proven to be significant, as it has tested this level seven of the last nine trading days. It’s an indication of strength in the bond market, and could allow bonds to build the steam needed to make another run higher.
Today’s Retail Sales report showed an increase of 1.3% in the month of April, which was stronger than the 0.9% anticipated by the markets. The Headline number was fueled by strong automobile sales which rebounded after a weak performance the month prior. This is often a time when we see people make purchases ahead of the summer months, especially those who want to feel better about the cars they drive as the weather heats up.
We also received a read on inflation this morning via the Producer Price Index for the month of April. The Headline number increased by 0.2%, and increased from -0.1% up to 0.0% on a year over year basis. Because this measures inflation on a producer level, it doesn’t always translate to inflation on a consumer level. Therefore, it has a muted impact on the markets.
Mortgage bonds remain trapped between support provided by the 25 day moving average and an overhead resistance level that has been in place for many months. As long as we remain above the 25 DMA, there is no need to lock. However, if a break below is made, lock in. It is also important to note that there is likely little benefit to float.