Budget Passes House

Stocks are climbing higher this afternoon after taking a beating in yesterday’s trading session.  Even as stocks were falling hard yesterday, mortgage bonds continued to struggle. The strength of this downward channel is strong, and showing no signs of weakening.  Unless tomorrow’s GDP report shows weaker than anticipated growth, we will likely see mortgage bonds continue to suffer.  Given that billions of dollars are being spent to rebuild and replace damage from the recent hurricanes, we can expect to see the GDP numbers trend higher.  Again, this will be bad for mortgage interest rates, as GDP is one of the most critical determining factors that set the market’s appetite for bonds.  As a general rule, as GDP increases, mortgage interest rates will trend higher.

The House narrowly passed a budget with 216 in favor and 212 opposed, which is the initial step in pushing Trump’s Tax Reform. Since there was plenty of testing that went into this process prior to the House taking the vote, it was already anticipated to pass.  However, the stock market is treating this as surprising news, and therefore driving stock prices higher.  Now that this hurdle has passed, the bill now heads into the Senate for approval.  Since this tax reform provides significant benefits for the wealthy, it is certain to face challenges in the Senate.  However, we have seen many Senators who oppose Trump’s addenda be either pushed out of their office or take sharp criticism, which may influence some. Regardless, it will be an interesting process to watch.

With bonds remaining in a sharp downward channel, we will maintain our locking bias.