Both the market and the weather are stormy in Austin. Both bonds and stocks are in the red. The only news of the day has been the Michigan Sentiment Survey, posting a gain of 4.6 points to 61.9. Current conditions rose 3 points to the highest level since December 2008 while future expectations rose 5 points, the best we’ve seen since September 2008. The survey said that 9 out of 10 Americans think the economy is in a recession but 39% are expecting improvement in the months to come.
Overall, the economy, whether it is a mirage or not, seems to be stabilizing. At least this is the markets, especially the stock market’s perception of a shift towards good fortune. Notes, bonds, and mortgage backed securities are feeling the pressure of continued supply and limited buyers, allowing a retreat towards higher yields and worsening mortgage pricing.
From the Fed’s point of view, they would like to keep the 10 year note in a range of 2.50% to 3.0%, their comfort zone to stimulate housing. Currently trading at 2.91%, we are at the low side of the range(futures chart) and testing the 100 and 40 day moving averages. This market has not traded below (100 day MA) since September of last year. To say the least, it is an important “line in the sand”.
With monthly, weekly, and daily charts mixed, expectations are for this level to hold and return towards the middle of the range. This would improve mortgage pricing should it occur. Trouble is, correlations between chart work, cash trading, Fed manipulation, and policy maker mumbo jumbo are nonexistent. In other words, the best advice is to form a plan and execute or, give an hour or two, the opportunity may be gone.
As we speak, the 10 year note is off 18/32’s (yield 2.90%), mortgage backs off 6/32’s, and stocks trading either side of unchanged. While we expect the market to hold, a trade above 2.92% would throw a monkey wrench into that plan as the chart would look to 3.0% as the next target. Careful out there and have a great weekend.
