Mortgage bonds are having a rough start to the day. They remain trapped between two Fibonacci levels, with one serving as support and the other serving as overhead resistance. Because the range between the two is so wide, bonds will be subject to excessive volatility as the markets decide which direction to break. Based on the technical picture and the current momentum, the near term outlook is not looking favorable for mortgage interest rates. Both the 10 Year Treasury Note and mortgage bonds seem to be moving down to the next floor of support. Since there is a ways still to drop, it is likely that rates will get worse before they improve.
Personal Income and Spending for May was released today. Income was +0.5%, which was in line with estimates. Spending was reported at +0.9%, which was higher than the +0.7% increase anticipated. Both numbers were strong and show continued strength in the US economy. Because consumer spending is the backbone of the economy, this sparked fears of a higher GDP. As the economy continues to improve, mortgage rates will correspondingly increase as we are seeing again today.
We also received Personal Consumption Expenditures (PCE) Price Index for the month of May. It was reported at +0.3%, which is in line with estimates. Year over year PCE is at +0.2%. When you strip out food and energy, Core CPE year over year showed an increase of +1.2%. This is still very tame. However, the momentum is certainly moving higher.
With mortgage bonds again under pressure, we will maintain our locking bias.