Mortgage Market Update

Last week was another week where I hate to be right.  While we managed to see bonds have a rally during the early part of the week, and even Thursday, reality set in on Friday and burst the "Bond Bubble". 

Bonds were driven largely by the stock market in the early parts of the week, but if you had been reading my updates, you would have known that I favored locking all but early Thursday as I knew the rally was not sustainable.  The reason is there were no fundamental changes, ergo there was no "real" thing that was pushing bonds higher.  Technicals did allow for a rally due to bonds getting back above their 25-day MA, but beyond that, nothing.

So, by Thursday afternoon, the "Bond Bubble" burst and reality started driving bonds lower.  Then came Friday’s all important PCE numbers and that further drove down bonds.  I had been warning about the risks of inflation for a long time, and Friday’s report showed just that.

This week, we are already starting out lower and I fully expect to see continued erosion of bond prices, letting more air out of the "Bond Bubble".  There is not much economic activity due out this week and with a shortened week to celebrate Christmas, volatility will again be the word of the week.  I recommend a locking stance again this week, though we may get a small rally as a correction at some point.  The overall trend looks to be broken, so a new trend, one of rates rising, may be in the process.

Here is what is due this week:

• Wednesday:  Crude Inventories (10:30)
• Thursday:  Initial Jobless Claims (8:30), Durable Goods Orders (8:30), and Consumer Confidence (10:00)
• Friday:  New Home Sales (10:00)

As you go through this week of limited activity, keep in mind bonds will be looking for anything to grasp hold of for support to stop their free fall.  While the reports above do not normally impact the markets much, with a shortened week and bonds gasping for air, they may take on more of a role.  Other than that, expect bonds to take direction from stocks.

Have a great week and a very Merry Christmas!!!

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