Safe play today will be to lock

Mortgage bonds are giving up some of the gains they made the past couple days, as strong economic news continues to pound the wires.  To begin with, the second look at 3^rd quarter Gross Domestic Product (GDP) showed the economy grew at a rate of 3.2%, which was stronger than the markets’ expectations of 3.1%.  Last month’s reading was reported at 2.9%, so this shows that the economy is advancing at a stronger rate than once believed.  The report showed that incomes are rising at 5.5%, which is the best number in 2 years.  Further, spending continues to be strong.  Since the first and second quarters were somewhat anemic, this will help but is not strong enough to make 2016 a respectable year for economic growth. 

The Consumer Confidence index rose to 107.1.  This was a strong move higher from the prior month’s upward revised reading of 100.8.  US consumers are clearly becoming more optimistic about the current and future states of the US economy.  However, we must consider that at some point we will be due for a recession.  The economy has been growing for a period that exceeds the typical cycle of economic growth, which increases the risks of a potential downfall.  Although impossible to determine at what point this will occur, we must consider this to be a likelihood at some point within the next couple of years.

Yesterday’s strong bond market drove prices to the top of a trading range.  With bonds now facing a strong ceiling, they look to be taking a break.  As we watch and see where the markets head from here, the safe play of the day will be to lock.