Tame Producer Inflation

Mortgage bonds continue to battle the triple ceiling of resistance that has held back mortgage interest rates from improving. Today’s Producer Price Index (PPI) report was bond-friendly, which has helped mortgage bonds improve slightly on the news. The report showed that Producer inflation was unchanged in the month of July, which was well below the gain of 0.3% the market anticipated. Given that tariffs have increased the price of producing certain goods and services, this was welcomed news to the bond market. Tomorrow’s Consumer Price Index (CPI), which measures inflation on a consumer level, will be of greater importance. If this report comes in low, it could provide the catalyst needed to push bond prices above the triple ceiling of resistance. However, odds of that move happening are low; so that’s not something that should be planned on happening.

In light of having minimal economic reports to help dictate the direction of the stock and bond markets, both continue to trade based upon the technical picture. U.S. stocks are having a tough time hitting all-time high levels, as stock investors have seemed to hold off on driving the market higher. This has helped mortgage bonds, as investors have chosen to place money in the safe haven of the bond market. The economic calendar heats up next week, so we could see market volatility increase.

With bonds still contending with strong over-head resistance, we will maintain a locking bias.