Still great risk in floating

After matching interest rate highs of 2015 yesterday, mortgage bonds bounced off of support and found some stability for the moment. Had bonds broken beneath support we would have seen mortgage rates take another step higher. Today’s support came primarily from a disappointing report on Retail Sales. It was announced that Sales for June were -0.3%, which was much lower than the +0.3% anticipated. When stripping out automobiles and gas, sales were -0.2%, which was well below the +0.6% anticipated. The primary concern is that Retail Sales have been trending lower and continue to fall. This will certainly hurt 2^nd Quarter GDP numbers.

Stocks have been on a very strong 3 day climb higher. This has been adding pressure to mortgage bonds and pushed interest rates higher. Stocks are higher again today and not too far off of all-time highs. Now that stocks are above all their moving average trend lines, there is very little to slow them down and keep them from climbing. This could add additional pressure to mortgage rates and cause bonds to turn negative as the day wears on. Given the weak economic data we received today, which is further supported by other recent reports, it’s surprising to see the stock market as strong as it has been. At some point, stocks need to correct and take a break from this seemingly unstoppable uptrend.

Given the continued volatility, there is still great risk in floating. Therefore, we will maintain our locking bias.