Mortgage bonds found their way to the bottom of a sideways channel this morning, as inflation data and news out of the Bank of England sent waves through the markets. To begin with, the Producer Price Index (PPI) for the month of June was reported to be + 0.5%, which follows a + 0.4% gain in the month of May. On a year over year basis, Headline PPI rose from -0.1% up to +0.3%. Although this is a very weak number, you can see that it is on a significant climb higher. This rate of growth is frightening to the markets and could be a precursor for higher consumer inflation reports coming soon. As a result, the bond market reacted negatively, pressuring the APR on mortgage interest rates higher.
In other news, the Bank of England decided to leave interest rates unchanged for the moment. This seems to be a good move, as they save their ammunition to be used at a later date should the markets in their region continue to weaken. Here in the US, this was harmful to the bond market, as it would be expected that money would flow from England into the US in search of higher returns. Since the rate hike was already baked into the markets, the market reacted negatively to the news.
There is a clear downward channel in the making on the bond market charts. If this is strong enough to drive prices below current support levels, rates will certainly move higher. As we wait and see what happens, we suggest a locking bias.