Mortgage bonds have started the pull-back we discussed yesterday. We still remain bullish longer-term on bonds. It is actually healthy for bonds to take a break from their run higher before trying to push higher. The stock market will heavily influence the future direction of bonds. If the stock market moves higher, it will be at the expense of the bond market. However, with stocks at such frothy levels, we feel there is an increased likelihood of a pullback in the stock market in the near future. If that does happen, mortgage bonds will likely benefit.
Wholesale Trade for March was reported this morning, showing inventories up 1.1%. This was significantly better than the 0.5% expected, and also better than last month’s 0.7%. This news has helped push mortgage bonds lower, and the yield on the 10 Year Treasury Note higher. Further, it shows optimism on the retail level of an increase in future consumer demand.
Mortgage bonds have made a break below support, and are now off the upward trend they have been in for nearly three weeks. The run higher was significant, and much needed to help support lower interest rates. We are going to maintain our locking bias for now. We see a great deal of reason for concern in the near-term, with the technical picture painting a weak outlook for the bond market. We suggest locking in to protect the gains realized the past three weeks. Hopefully, the bond market will regain some strength next week to make another attempt to move higher. Count on us to keep you informed.