Bonds Continue to Battle their 200-Day Moving Average

Stocks are taking a breather today, following an epic day yesterday that included setting new all-time high records. Today’s weakness in stocks is helping the bond market recover some of their losses from yesterday. However, with the 25 and 200 day moving averages just above current levels, bonds will have a difficult time making any significant improvements today.

It’s important to note that the yield spread between the 10 Year and the 2 Year Treasury Notes is now just 81 basis points. Although this is still a wide spread, it’s tighter than it has been since 2007. The significance of this is that when the 2 Year yield exceeds the yield offered on the 10 Year, it generally is a precursor to a recession.

Oil prices just hit their lowest levels of 2017, marking a continued struggle in an industry that was once a pillar of strength. Although great for consumers at the gas pump, it doesn’t do much to help support the higher levels of inflation that the Fed would like to see. This is, however, supportive of lower mortgage interest rates.

With bonds still beneath their 200-day moving average, we will maintain a locking bias.  If they can climb above their 200-day moving average however, we will change to a cautiously floating bias.