23 Apr Mortgage bonds above the 200 DMA
Mortgage bonds made a late day move above the 200 day moving average yesterday afternoon. This was in spite of a strong day in stocks. As we mentioned yesterday, the 200 DMA often either acts as a spring board to push bond prices higher, or the beginnings of a sharp move lower. It was encouraging to see the late afternoon push above, and a follow through move higher today.
Purchase mortgage applications were reported this morning, showing a drop of 3% from last week. Overall, purchase applications are down 18% from this time last year. Hopefully, the purchase market will snap higher as we move into summer months. After a long, cold winter, many are ready to put their homes on the market and make a move.
The March New Home Sales report was released, showing 384,000 new units produced. This was shockingly lower than expected, and down 14.5% from last month’s figure of 449,000. This was the lowest reporting since July of 2013. The reasons for the drop are at this time unclear. Especially since the Medium New Home Price was reported to be $290,000, which is a whopping increase of 17.4% from last year. It seems that if the demand for new homes was diminishing, there would be downward pressure on prices. We will be watching next month’s report closely to see if this is a new trend lower or if this report is just a one-off decline.
With mortgage bonds now above their 200 day moving average, we will suggest a carefully floating bias to see if they can hold above this critical level. With the stock market within striking distance of reaching all-time highs, be careful not to take your finger off the locking trigger. If stocks make another run at new record highs, that will add pressure to the bond market. However, if stocks get pushed lower after a failed attempt, that would likely help boost bond prices and push interest rates lower.