Mortgage bonds remain trapped within the same trading range, bouncing between their 100 day and 50 day moving averages. If bonds remain within this range, they will be subject to high volatility and can range from one spectrum to the other within a short time. Currently, the market is moving toward the top of the trading channel. Eventually, bonds will be forced to decide on which path to choose. With stock prices just beneath all-time high levels, we can expect stocks to weaken as they approach this critical level. When that happens, we will likely see mortgage bonds be the beneficiary and hopefully it will help prices break above the ceiling so we can see interest rate pricing reduce even further.
In yesterday’s market update, we talked about the slowing number of shipments eventually taking a toll on Retail Sales. This morning’s Retail Sales report showed a decrease of .3% for the month. This is well below a .3% increase that the market was anticipating. This points towards a slowdown in consumer spending, which is not good news for the strength of the US economy. If consumers aren’t buying at the same pace, GDP will certainly be impacted. Therefore, we need to watch this number closely going forward.
If bonds remain trapped in the narrow trading range, there is no benefit to floating. Unless you’re willing to take a risk of waiting to see which direction bonds will break, locking is prudent.