Monday Market Commentary: Mortgage Rates Rise, Technically

by Alex Stenback on May 21, 2007

                                                                       Graphic Courtesy MSNBC
Last Week
Despite a relatively benign print from the consumer price index, mortgage bond prices tanked, resulting in a rise in rates on most home loans of .25-.375%.  What happened?  It’s all about the technical (charts, moving averages, etc.) rather than fundamental (economic data) picture.  The price of mortgage bonds crossed below the 200 day moving average, which from a technical standpoint is an unusual and bearish signal.  Underlying the technical aspect, we’d also add the market now seems convinced inflation persists, and until there is clear evidence to the contraray, the Fed won’t be cutting rates.
This Week
Now that the bond market seems to finally believe the Fed regarding it’s stance on inflation, and the fact that the economic calendar is relatively thin this week, the market should continue to move on momentum and technical factors.  Our take is that bond prices have some room to worsen (rates to rise) and that market direction will be driven by the above mentioned technical/psychological factors until we have new data on inflation.

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