Mortgage bonds remain right at the top of the trading channel, as markets look for direction as to which way to move. Although today is a quiet day for scheduled economic reports, the week will be extremely busy. Wednesday will be the Personal Consumption Expenditure report (PCE), along with ADP’s estimate of new job gains for the month of August. The market is currently expecting about 180,000 new hires from both ADP on Wednesday and the Bureau of Labor Statistics (BLS) on Friday. Given that we are heading into the weeks of summer, we generally see job growth rates slow. It will be interesting to see if that trend has already started or if hiring is still moving at a decent pace.
Investors are closely watching the 10 Year Treasury Note, as the yield is currently just below the critical 2.18% level. If the yield on the 10 Year can stay in this range, we will see downward pressure continue to help improve mortgage interest rates. Although there is no way to say for sure, it seems that the 10 YTN yield could easily hit 1.9% before the end of 2017. This is contrary to what almost all predictors of interest rates are saying. However, from my perspective this seems like it has a decent chance of happening.
Until mortgage bonds can make a decisive break above current levels, we will maintain our locking bias.