Bond Market Showing Strength

Despite stocks continuing to break all-time record highs, mortgage bonds are holding up surprisingly well under the intense pressure.  This is a sign of strength for mortgage bonds, which compete for the same investment dollars as stocks.  Generally, when stocks make strong gains, it is at the expense of mortgage bonds, so interest rates are driven higher.  However, interest rates have held steady as stocks have made some of the most impressive gains we have seen all year.  As long as bonds don’t give in to the pressure, the stock market rally will eventually stall, giving mortgage bonds a much needed break.  At this point, there is no telling when that will be.  There is little rationale for stocks to keep climbing.  So it is just a matter of time.

We had several reports on the housing market this morning, with most coming in strong as expected.  The housing market has certainly been a pinnacle of growth in the overall US economy for a number of years.  Given that housing and labor markets are closely tied, this has been expected.  However, as we head into 2020, I anticipate the labor market to continue to weaken, which will likely trickle down into the housing market.  Home mortgage payments have already surpassed 25% of a large portion of the US population’s income.  When this occurs, we can expect to see interest rates and/or home prices fall.

As bonds continue to battle the ceiling, we are encouraged by the strength the market has shown.  Tomorrow’s news reports could provide the catalyst to push the market in one direction or the other.  Until we see which way things will go, we will maintain a locking bias.