Mortgage bonds broke below their 200 day moving average this morning. As often occurs after a break below support, bonds fell sharply and are now heading down to their next support which sits about 15 basis points below current levels. Since it is still early in the day, it is possible that bonds will bounce higher before the end of trading today. Performance in the bond market will be influenced by how well the stock market performs. Stocks are having a strong opening this morning, and are close to challenging all-time highs. This is creating headwind in the bond market and pushing interest rates higher.
Federal Reserve Chairwoman, Janet Yellen, said today that extraordinary commitment is still needed and will be for some time. It appears she is trying to calm the markets and assure investors that short term interest rates won’t be moving higher any time soon. These calming words are needed after her speech a couple weeks ago spooked the markets and introduced the idea of higher rates as early as next spring. We feel this would be too soon and that our economy needs more time to stabilize before rates can comfortably move higher.
Chicago PMI for March was released this morning at 55.9. This was weaker than the 59 anticipated, and the lowest reported number in 7 months.
Employment growth for the month of March will be released this Friday. This is always a volatile report and is almost certain to move the markets one direction or another. Therefore, this may be an unpredictable week in the bond market, with a higher likelihood of rates moving higher in anticipation of a strong employment report.
With mortgage bonds struggling so far this morning, and with the volatility this week will likely bring the markets, we are going to suggest a locking bias. Stay tuned and watch closely akk week, as economic reports and changes in the Russia/Ukraine conflict are almost certain to influence interest rates.