26 Aug Locking bias
Mortgage bonds have been all across the board so far this morning. Overall, this isn’t a healthy sign for mortgage interest rates. At the current time, bonds have broken beneath their 25 day moving average and are currently sitting dead on their 50 DMA. Given the level of volatility, the odds of bonds breaking below their 50 DMA are rapidly increasing. If stocks continue to show strength, this could add the pressure needed to cause bonds to break lower. If they do in fact break lower, the damage to interest rates would likely be quick and painful.
This morning we received an update on second quarter Gross Domestic Product (GDP). The results show continued stagnant growth in the US economy. The economy only grew by 1.1%, which is also lower than the prior update of 1.2%. In the report, it showed that corporate profits reduced again. However, consumer spending did move higher and was stronger than anticipated. Overall, this was a weak report and certainly nothing to celebrate.
With the bond market still showing weakness, we will maintain a locking bias.