If you can’t watch the market closely, lock

Mortgage bonds have been able to hold above the floor of support and are now trading on the lower range of the sideways channel they have been in since early February.  Given the amount of strong economic data that we received late last week, this is a bullish sign for mortgage interest rates.  This week we will receive reports on the housing industry from ADP on Wednesday and the BLS (Bureau of Labor Statistics) on Friday.  It is likely that bonds will remain in this trading range until the first report is released.  At that time, we could see some shake-up in the bond market based on the strength of the labor market.  If it is reported that new hires are strong, bonds could be forced lower and outside of the channel.  However, if the labor market is weak we could see bonds move up and allow interest rates to test the low levels of a couple weeks ago. 

The Federal Reserve is certainly between a rock and a hard place following the stronger inflation data released on Friday.  As an entity, they are to help keep the US economy at maximum employment while maintaining a reasonable rate of inflation.  If the stronger numbers from PCE are the beginning of a trend higher, this would cause the Fed to be forced to push short term interest rates higher.  That would strengthen the US dollar and create further headwind for US companies exporting goods and services.  Given that corporations are already struggling with lower profits, a rate hike would further damage their bottom lines.  However, failing to act could push inflation and job gains to a dangerous level.  We will have to wait and see what future inflation reports are showing. 

With bonds now at the bottom of a sideways trading range, you can carefully float.  However, if bonds turn negative and break beneath this level, lock immediately.  A locking bias is the safe play for those not able to watch the markets closely.