31 Jan Locking bias
The stock market experienced its largest single day decline of 2017 yesterday, and is continuing the same path once again today. This is helping improve mortgage bond pricing. However, bonds remain trapped beneath their 25 and 50 day moving averages. As we mentioned in yesterday’s update, bonds have not decisively been able to remain above their 50 DMA since early October 2016. This is clearly a strong ceiling of resistance that could very likely hold mortgage rates from making any meaningful improvements from this level. However, if bonds can muster the strength to make a break above this level, that would be an indicator of overwhelming strength in the bond market that could help mortgage interest rates in the near term.
Back in the days when Alan Greenspan was the head of the Federal Reserve, the preferred gauge to measure consumer inflation was the Employment Cost Index. Although that is no longer the favorite, it tends to be viewed as a leading inflation indicator. Of course, in recent years this has shown very tame growth. Today, the Employment Cost Index was released for the 4th Quarter of 2016. It showed that private sector wages and salaries increased 0.5%, which was slightly below the market’s expectations. Year over year the index is up 2.2%, which is slightly below the prior report of 2.3%.
Although bonds are doing well so far this morning, they remain trapped beneath an important ceiling. Unless they can make a decisive break above this level, we will maintain our locking bias.