Stocks are down slightly and mortgage bonds are close to unchanged levels this morning. Bonds fell to test the days moving average in early trading this morning and have since recovered their losses. It’s a great sign to see the DMA hold, as a break below this critical level would be a terrible indication of further losses ahead. If bonds can hold their ground, we could see some strength build up. However, it’s too early to make that predication at this point.
The Consumer Price Index (CPI) report for the month of August was released this morning. Since this measures inflation on the consumer level, it’s considered a critical report for mortgage interest rates. As expected, inflation levels increased 0.4% for the month. The year-over-year Headline number also rose from 1.7% up to 1.9% on a year over year basis. However, when subtracting food and energy prices, the monthly rate increased only 0.2%, with a year over year increase of 1.7%. Given that this was higher than the 1.6% rate anticipated, this was not a friendly report for mortgage interest rates.
There remains an undercurrent of weakness in the bond market. We will maintain our locking bias.