Today was a big day for the mortgage market, with the release of the Personal Consumption Expenditure (PCE) report for the month of March. Since this is the Fed’s favorite gauge of inflation, it’s important to the bond market and will set the pace for the short and long term direction of mortgage interest rates. For the first time in over 5 years, the headline number is over the Fed’s target of 2%, coming in at 2.1%. The most surprising part is the rate at which it is growing. The pace of acceleration is at its highest point since 2012. If this rate of growth continues much longer, the Fed will find itself well behind the curve and will be forced to raise rates at a much more rapid rate than currently planned.
Next week will also bring importance news to the bond market, with both ADP and the Bureau of Labor Statistics set to release their estimates of job growth in the month of March. Past history shows March to be one of the weaker months of gains, as employers prepare to staff up for the hotter months of summer. Generally speaking, the bond market of late has not performed well ahead of the Job reports. Therefore, we could be in for some added volatility as we start the new week on Monday. The result of the Job reports could set the stage as to which direction bonds will head. They remain trapped between their 50 and 100 day moving averages. We will have to wait and see which direction things go.
Unless bonds are able to make a decisive break above their 100 day moving average, we will maintain our locking bias.