Mortgage bonds opened up stronger this morning and stocks started to the downside. It’s nice to see the two markets working in their typical fashion, with one moving higher as the other falls lower. This will be a heavy week for economic news, so markets may become more volatile as the week moves on. One highlight could be tonight’s Presidential Debate between Donald Trump and Hillary Clinton. It will be interesting to see how stocks and bonds react tomorrow.
Mortgage bonds are now pushing up against a strong ceiling of resistance. Since this is one they have not been able to break above in months, it seems unlikely that today will be an exception. Friday’s release of PCE (Personal Consumption Expenditures) report could be what the market needs for bonds to make a break higher. If inflation is below expectations, we could see bonds benefit which will pressure mortgage rates even lower. However, if the report happens to show inflation moving higher, rates will likely suffer.
With bonds pressing against a strong ceiling, the safe play will be to have a locking bias.