Today is a quite news day, and will remain so with the markets closed tomorrow in observation of Veterans Day. During times of low economic data, technical factors typically dominate the markets. Stocks are again at all-time highs this morning, which could add increased headwind against the bond market. Stocks have been on an unsustainable patch higher for the past month. It is certainly time for stocks to take a break. When that happens, that will help support mortgage rates. There are signs that stocks are growing tired, with indications that volatility may be near. The 10 Year Treasury Note had a great day on Friday, with the yield dropping from 2.41% down to 2.31% at the close of market. That is an encouraging sign. However, for yields to continue lower, we will likely need to first see weakness in stocks.
The global economic slowdown has continued, with Russia admitting that sanctions are hurting their economy. Further, China’s economic woes are deepening, with their Producer Price Index dropping 2.2% from just a year earlier. The struggle to push consumer prices higher is a global issue, with US prices facing the same concern. Deflation creates stagnation in economies, as consumers pause on making large ticket purchases in hopes of achieving a lower price in the near future. This can be catastrophic for an economy, and is not what most economists expected this many years after unprecedented government intervention as inflation was supposed to be the concern at this point. This continued struggle to achieve upward price pressure is spurring discussions about new stimulus packages to help boost inflation rates to acceptable levels.
Bond markets are currently resting on support levels that have provided stability for the past several weeks. Whether or not these levels hold will depend upon the stock market and where it heads from here. If stocks continue their upward momentum, bonds may fall beneath support. However, if stocks take a break from their unsustainable path higher, bonds will benefit. In the meantime, until bonds show signs of stabilizing, we are going to have a locking bias. It has been several weeks since we have had a continued improvement in the bond market. Hopefully, bonds will be in for a rally higher in the near future.