Cautiously float

Mortgage bonds are higher so far today, managing to break above their 25 day moving average.  This puts bonds back in the same sideways channel they were in a few weeks ago that led to rates hitting near all-time lows.  This is primarily a technical move with investors clearly stepping back into the market now that the volatility associated with last Friday’s Bureau of Labor Statistics Jobs Report has settled.  Now the market has less reason to be concerned about sudden large movements in the market, which could lead to a slight reduction in the APR of mortgage interest rates over the next few days.  We will have to wait and see what happens. 

News of the day was mixed, headlined by weak Productivity numbers.  Wholesale and labor cost numbers were higher than expectations.  None of the reports of the day were overly important, so little of the market’s improvement should be attributed to today’s news.  The news reports become more significant as the week moves on, with Friday bringing an update on inflation by means of the Producer Price Index (PPI), as well as consumer spending as reflected by Retail Sales.  Therefore, we could see additional volatility as the reports are released.  Therefore, be on guard in case the numbers are stronger than expectations. 

When bonds are trading in a sideways channel, we follow the general rule of floating while at the bottom and locking when at the top.  Given that we are now at the bottom; we can carefully float.  However, only do so if you are able to watch the markets closely.  Be prepared to lock should the direction change.