Good Friday AM,
The 10-yr at 1.23% and mortgage bonds up a dozen (both pointing to improving rates) as the Personal Consumption numbers were released this morning and prices came in lower than expected. On the flip side, personal income and spending slightly beat expectations but were still weak. The news we have seen over the last week, continues to reinforce that inflation is an early stages of moderating and the economy has likely peaked. Adding to a slowdown in inflation (and soon to be economic activity once again) is the rise In Covid case counts. I’ve included a quick overview of how this is currently shaping up below. Lower inflation (and a slowdown in economic activity albeit for heartbreaking reasons) is of course good for bonds and with this news behind us, It is now more likely that the current rally will continue. Just remember that pullbacks are normal as prices rise. It’s never a straight line up or down. At this point I think we will test the top of the channel on both the 10-yr and mortgage bonds. What we do from there is really the driver. If we can close below 1.22% for two days on the 10-yr, the sun could be shining on rates for a bit. If not, which I have to share is typically the case, we will work our way back up the channel with worsening by .125. No reason to worry as those moves don’t often happen abruptly, but it is good to watch the trends.
Please remain safe and healthy, enjoy the weekend and first, make today great.