Mortgage bonds managed to close above their 50-day moving average yesterday, which was the first time this has happened since early October of last year. This significant move shows an underlying level of strength within the bond market right now that is likely reflective of the political volatility we are now experiencing. There have been many threats made by business and political leaders surrounding the current push by the Trump Administration to revamp international trade agreements to make terms more favorable for US businesses. This has led to some fearing that restricting trade will ultimately lead our country into war. The very talk of the word “war” is all that some need to rush into the safe haven of the bond market, which would help improve mortgage interest rates.
Bill Gross, a prominent bond trader who manages the world’s largest bond fund, may have called the end of the Treasury bull market too soon. Last December, when the 10 Year Treasury Note yield rose to a multi-year high at 2.6%, he stated that breaking that level on a weekly or monthly basis would signal the end of a three-decade long bull market. However, it seems that the post-election euphoria is fading. Since reaching its high, treasury yields have fallen 20 basis points, and are now sitting right at 2.4%. Although yields are expected to increase as the year wears on, a recent poll by Bloomberg shows that the peak of 2.6% will not likely be exceeded for several months. That’s good news for mortgage interest rates as we head into the spring and summer months.
With mortgage bonds now above their 50 DMA, we can watch the markets closely to see if they maintain their position. If we see a drop below this critical level, we suggest immediately locking.