Bond Prices Take a Step in Right Direction

Mortgage bonds made their first significant step towards recovery, breaking above their 50-day moving average. Now the future of short-term mortgage interest rates depends upon whether bond prices will have the strength to overcome their 25 DMA, which is just above current levels. I don’t anticipate this to be an easy battle for the bond market. In fact, there is a reasonable chance that this level will hold bonds back and create a negative momentum that could push bonds back beneath the 50 DMA. Until prices have a couple of days holding their position, it will be too early to expect much improvement. If they do break above their 25, that will be a sign of strength and then we can expect mortgage pricing to improve in the near term.

Today is a quiet day for scheduled economic reports, so the technical picture will help drive the markets. With the 10-Year Treasury Note yield showing a downward trending pattern, that will help mortgage bonds. As the week moves on, we will have some important economic reports released. Of these, the Personal Consumption Expenditures (PCE) report will be the most critical. If we see tame inflation levels, we can expect to see low mortgage interest rates.

There remains great risk in floating. Unless bond prices can break above their 25 DMA, current rates are as good as we will see.