Bonds Break Down

Mortgage bond prices are falling hard in early market trading, stemmed by continued optimism over an expected agreement over the trade war with China.  Last night it was announced that the US is likely going to remove some of the tariffs that are currently in place in hopes of getting an agreement signed.  This will help not only strengthen negotiations, but it will also remove some of the headwind the tariffs are creating for the US economy.  So overall, this is a good sign and something to be celebrated.  At some point, however, the market needs to fully price in an end to the trade war.  It’s crazy to see stocks continually setting new all-time high records over a hoped-for agreement.  Seems the market would have reached a peak before the trade war started and when the US economy was actually performing better than it is today.  I’ll say it once again – the stock market is not in a rational state of mind.

Mortgage bond prices have once again broken beneath their 25 and 50 day moving averages.  Considering how big of an accomplishment it was when bonds over came these levels last week, this is not good news for the near term direction of mortgage interest rates.  These levels will now once again act as a ceiling of resistance to prevent mortgage interest rates from making much improvement.  Until bond prices are able to get back above these levels, we will see interest rates struggle.

Given the continued weakness in the bond market, we will maintain a locking bias.