Bond Prices Continue to Advance

The mortgage bond market continues to climb higher, as market movers seem to be positioning their holdings to align with a recession heading our way. The last time the 10-Year Treasury yield was this low was September of 2017. There are only a couple more significant floors to breach before yields have a pathway that could take yields down to where we were in 2016 when mortgage interest rates were in the mid to low 3% range. Although it will likely take many months to get us there, I believe it will eventually happen. At that point, we will likely see the U.S. stock market struggling as the mortgage bond market rallies.

In a blow to the President’s economic plan, a key U.S. factory gauge has fallen to its lowest levels since Trump entered the White House. This is a sign that President Trump’s trade war is starting to take a toll on the U.S. economy. We are starting to see a more serious impact on the global economy as well as a consequence of the trade war. With a trade battle also heating up between the US and Mexico, that could spell further trouble as the months progress.

At current bond price levels, I’m very concerned about a pull-back. We could see prices move lower as investors take some profits off the table. Fibonacci levels would tell us to expect a 38.2% pull back from where bond prices were before the they began their strong climb higher. So, although I’m very bullish on the bond market in the longer term, I anticipate a pullback coming soon. Also, know that I remain very bearish on the stock market. This combination will likely lead to great mortgage interest rates in the future.

If you can closely watch the market, I suggest floating. Just keep in mind that I expect a pull-back soon, so we could quickly switch to a locking bias.