Mortgage bonds are off to a nice start this morning. Today is a quiet news day with the market preparing for a heavy load of economic news next week which will include five housing reports, GDP, Durable Goods and the Consumer Price Index. Of all the reports that impact mortgage rates, the two most important boil down to GDP and the Consumer Price Index (CPI), both of which will be reported on next week. Given that inflation figures have been declining, CPI will likely show that there is little concern that prices are moving higher too quickly. Further, recent indicators would suggest that GDP is weakening relative to the latter months of 2014. If both of these reports are weaker than the market anticipates, that will help bring down mortgage rates closer to where they were a couple weeks ago.
The stock market is showing early signs of weakening, with it failing to make gains in each of the past three trading days. Stocks have a long way to fall to reach support at the 25 and 50 day moving averages. Should they continue their downward path this will be very accommodative to the bond market, which could also help bring mortgage interest rates down. As investors sell their stock holdings they often move their cash into the safer, but lower return bond market. This is also supporting the 10 Year Treasury Note. The yield on the 10 YTN is currently at 2.06. This is a nice reduction from the 2.15% yield reached on 02/17/2015. We would like to see the yield fall beneath the critical 2.02% that it has battled many times the past month. Hopefully this will happen at some point next week.
With mortgage bonds showing improvement, we will begin the day with a cautiously floating bias as we watch and see if bonds can continue to move higher. However, there is often intraday weakness that develops in the early to midafternoon. The key will be how the stock market performs as the day wears on. Should stocks narrow their losses this will come at the expense of the bond market. Therefore, be prepared to lock. Sentiment can reverse quickly.