Keep an eye on stock market direction as mortgage pricing will trade just the opposite

The menu today features a bowl of bank stocks coming to market, all in an attempt to take care of their stress test needs, oversold conditions in treasuries due to last week’s plate full of auction paper, and a touch of Fed buying in long dated treasuries to prop up the market.  Converting all of the above to what’s on the screen has the 10 year note up 21/32’s (yield 3.22%), mortgage backs up 10/32’s, and stocks off 108 on the big board.  The week ahead will give us a good look at Retail Sales on Wednesday and inflation numbers (PPI and CPI) on Thursday/Friday.  From our chart work, the rally today has taken the 10 year note through the 8 day moving average (3.24%).  This is the third time since the bear market trend started a couple of weeks ago.  The two previous attempts to rally were rejected.  Maybe the third time is the charm.  We will need to close below 3.24% today and then march towards the next major resistance level at 3.18% to feel better about the trend.  With stocks up nearly 37% from the March lows, some type of new catalyst will be needed to keep their momentum going.  We see this as a good place for consolidation to occur (stocks) and give a lift to MBS and better mortgage pricing.  Keep an eye on stock market direction as mortgage pricing will trade just the opposite.

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