Bonds Break Above their 50-Day Moving Average

Mortgage bonds are climbing higher this morning, taking over their 50-day moving average once again.  We had some Fed speakers talk publicly this morning.  It seems as if most agree that the market forces that pressured inflation lower over the past several months are dimming, which should allow the Fed to maintain their plan of at least one more rate hike in 2017 and three total hikes in 2018.  Assuming there isn’t a significant market reaction to the Fed implementing Quantitative Tightening in October, and that the economy continues to expand as the Fed plans, we can expect to see the remaining 2017 rate hike happen in the month of December. 

Today is a relatively quiet news day, so the technical picture will heavily dictate the direction of mortgage bonds.  We have several reports on the housing market this week.  Given the strength in housing, we expect the trend of housing growth to continue to be strong.  This could increase the upward pressure on mortgage interest rates.

Later this week we will have an updated report on the Fed’s favorite gauge of inflation, Personal Consumption Expenditures (PCE).  This report poses a threat to interest rates on Friday, when it is scheduled for release.  If it shows that inflation on the consumer level is climbing higher as the Fed anticipates, we will see an adverse reaction in the bond market. 

There currently is no rush to lock in an interest rate.  However, be mindful that improvements in the bond market will be limited and may not justify the risk of floating.