Mortgage bonds rallied yesterday as the stock market dropped in response to concerns over China’s economic challenges and continued threats of violence in Ukraine. Then this morning, bonds are slightly improved again after PPI (Producer Price Index) showed February’s reading at -.1% when .2% was expected. Inflation on a manufacturing level is virtually non-existent and will continue to support lower interest rates. Considering that the Federal Reserve has spent trillions of dollars with one of the primary goals to increase inflation, you can be certain that the Fed is disappointed in this report.
Consumer sentiment was reported this morning, coming in at a disappointing 79.9 while the market was anticipating 81.8. As has been the case with most of the recent disappointing economic reports, many pundits are again blaming weather and believe confidence will move higher now that weather is improving. Although weather certainly does influence economic conditions, it sure seems to be WAY overused as an excuse lately….
The S&P 500 is currently sitting right on a floor of support, and mortgage bonds are trading in a tight range. Also, the yield on the 10 year Treasury note is again below the 200 day moving average. Unless we see a move higher in the stock market today,mortgage bonds appear poised to have another good day. However, we will still suggest a locking stance while we wait and see if bonds can muster the strength to push above overhead resistance as we have seen in the past that the stock market will try hard to rally. It is better to be locked and secure after a good day then to be floating in uncertainty.