Mortgage bonds are holding steady after the extended weekend. They are currently just 12 basis points below the best level they have reached since November 18th of last year. If they can muster the strength to break above this level, they will then be heading for their 200-day moving average. This would be a significant battle, as they have not been above their 200 DMA since the day before President Trump was elected. It was at that point that the markets reversed from being in a downward trending environment to being in an upward trending market.
On Friday, the Consumer Price Index (CPI), which measures inflation on the consumer level, showed inflation weakening. The Headline CPI declined from 2.7% down to 2.4% on a year over year basis. The Core CPI Rate, which strips out food and energy prices, dropped from 2.2% down to 2.0%. This report is a change from the recent upward trend. However, inflation is still running above the Fed’s target rate of 2.0%. At this point, it’s still too early to pop the Champaign bottle. We could see inflation heat back up in the months to come as we head into the generally stronger economic summer months.
Unless we have a political or global event happen in the near term, bonds will likely be held back at current levels. As long as they are, we will suggest a locking bias to take advantage of the recent improvements.