Retail Sales Fall

Despite the U.S. stock market recovering some of what was lost in the past week, mortgage bonds are holding onto their gains. This show of strength is great news for the near-term direction of mortgage interest rates. However, bond prices are right now matching the highest levels we have seen in nearly a year and a half. Each time bond prices have challenged this level since, they have quickly been pushed back lower.  In looking at the charts, we can start to see signs of weakness. Since we are more likely going to see bond prices fall rather than continue to climb higher, we could now be at the best rates we can expect to see in the near term. However, if the “against the odds” break above the ceiling happens, we can expect to see rates continue to fall even lower. That would provide an incredible boost to the summer home buying season which is just around the corner.  Let’s plan for the worse but hope for the best.

This morning’s Retail Sales report showed that consumer spending is well below what the market was anticipating. The Headline number showed that Sales declined 0.2%. When you consider that the market was expecting to see a positive reading of 0.2%, this shows that the reality is far below expectations.

The Retail Sales report is one of the strongest gauges of the strength of the US economy. As many say, “As goes the consumer, so goes the economy.”  Therefore, the bond market is stronger on the news. Given that the bond market is generally more tied into the actual state of the economy relative to the stock market, this could help bond prices are they face the current battle over a nearly 18-month ceiling.

Unless bond prices can break above the current ceiling, we will maintain a locking bias.