After falling below their 200 day moving average yesterday, mortgage bonds have climbed back above this critical level. This morning’s GDP report helped bring strength to the bond market after investors realized there was a deeper story behind the stronger than anticipated headline report. While the market was anticipating a reading of 2.5% (which we mistakenly misquoted in yesterday’s update), actual gain was reported to be 2.9%. Although this was the highest number reported in 2.5 years, it’s a bit misleading. A deeper look into this number shows that the strength was primarily from experts; specifically, Soybean shipments to South America after they experienced a poor harvest season. Therefore, the headline number must be taken with a grain of salt.
One area of concern revealed within the report was a much lower level of consumer spending in the third quarter of 2016 relative to the second quarter. While the second quarter showed a growth rate of 4.3% in the level of consumer spending, third quarter results showed only a 2.1% rate of growth. With consumer spending being the heartbeat of the US economy, this is a worrisome concern to the true health of our economy. Summer months are generally strong spending months for consumers. However, that wasn’t the case in 2016.
Although bonds are still above their 200 day moving average, there is significant pressure for the 10 Year Treasury Market to drive mortgage interest rates higher. There is not currently an immediate need to rush in and lock today. However, Monday morning trading could be a different story. If you wish to avoid the risks associated with floating, the safe play is to lock.