Mortgage bonds are losing the battle over their 25 day moving average, and are now beneath this critical level once again. This moving average has been a ceiling of resistance that has been in place since early September of last year. Having bonds fall below this means that it will again be a ceiling to contend with. Until bonds are able to make a break above, mortgage interest rates won’t improve beyond where they are at this time. In fact, the 25 day moving average will continue to push rates higher unless bonds ultimately win the battle.
Despite the massive tax reduction plan that kicked in on January 1st of this year, the U.S. economy has started the year with a downshift in growth. February’s unexpected weak read on Retail Sales lowered the forecast for 1st quarter 2018 GDP. The Federal Reserve’s Bank of Atlanta’s GDPNow lowered its estimate from 2.5% down to just 1.8% on an annualized basis. Further, economists from Goldman Sachs, JP Morgan Chase, Morgan Stanley and Moody’s Analytics all lowered their estimates to 2% or lower. This does not bode well for the Trump Administration, as it was hoping to see an immediate uptick in GDP following the highly anticipated tax reform. This is good news for mortgage interest rates on a longer term basis.
With bonds still beneath their 25 DMA, we will maintain our locking bias.