Bonds Show Weakness

Although mortgage bonds are flat for the day, they are showing signs of weakness. They bumped up against the top of the trading channel on Friday and were pushed lower. This is a bearish sign and could lead to worse pricing in the near term.


Although today is a slow day for economic news, we will receive updates on consumer inflation on both Wednesday and Thursday. If both or either of the reports show inflation is progressing at a faster pace than expected, bonds will likely suffer. From a technical standpoint alone, we can anticipate bonds falling to the bottom of the trading channel.  The saving grace could be lower than expected reports on inflation. That would be needed for interest rates to improve below current levels.


Oil prices crossed a significant line today, with prices surging beyond the $70 per barrel mark. This significant move helped push stock prices higher, which is creating a headwind for mortgage bonds. Higher oil prices can translate to higher consumer inflation levels, as manufactures increase prices to cover higher costs. It seems likely that inflation levels will soon move higher. As a result, we can plan on higher mortgage rates to follow.


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