The blood bath continues in the bond market, as mortgage interest rates are once again higher today. The downward trading channel that mortgage bond prices are now in has passed through multiple floors of support like a hot knife through butter. It’s hard to say where a bottom will be found. In the meantime, we must assume the downward trading channel will continue. With the 100-day moving average now not too far beneath current levels, we can hope that this floor will hold. However, we shouldn’t plan on that happening.
Recent strong economic news has been a major reason mortgage interest rates have risen as quickly as they have. When deciding on whether to take advantage of the current market or to wait for lower rates, remember that rates improve slowly and deteriorate quickly. As a rule, this makes the benefit of floating minimal in the short term. It’s usually better to take advantage of the opportunity at hand vs wait for rates to fall.
This morning’s retail sales for the month of August came in hotter than anticipated. While the market was expecting to see a gain of 0.2%, the actual report showed a gain of 0.4%. However, when you exclude automobile sales, the report was in line with the market’s expectation. The media is heavily focused on the headline number, which really isn’t the right focus. Auto sales moved higher due to lower interest rates, which is just increasing the debt burden of the average American consumer.
Until bonds can find a floor, we will maintain a locking bias. This is not an environment in which to take risks. No one knows when we will find stability.