Tame Inflation Fails to Improve Mortgage Bonds

Mortgage bonds are trading near unchanged levels this morning, which is a bit of a surprise considering news of continued tame inflation.  According to the Personal Consumption Expenditures (PCE) report, year-over-year Headline inflation fell from 2.3% down to 2.2%.  With this being the Federal Reserve’s favorite gauge of consumer inflation, this is good news to the mortgage bond market.  However, mortgage interest rate pricing is showing very little improvement, which could be a sign that bond prices have hit a ceiling.  It may take a few days to see what trend we will see in the weeks to come.

Next week is an important week for mortgage interest rates, with the Bureau of Labor Statistics (BLS) set to announce their estimate of new job creations in the month of September next Friday.  This highly influential report could set the direction of mortgage interest rates for the weeks to come. Assuming the trend of a strong labor market continues, we can expect to see rates move higher.

Given the bond markets’ inability to improve following the low PCE report, we will switch to a locking bias.