It's Wednesday - already. While Building Permits and Housing Starts both came in a fair amount weaker than expected earlier this week, Existing Home Sales came in at 5.33mil vs. estimates of 5.30mil and previous of 5.08mil. While this is not a direct factor in pricing, it is a sign that the economy (at least this sector) is picking up and if the economy in general begins to show signs of a true recovery, the Fed will have reason to raise rates.
Speaking of the Fed, they meet next week and the consensus is that they won't raise rates. The market is expecting one rate increase from the Fed this year even though we've been hearing a lot of comments from several Fed members that there will be two. It's really anybody's guess as to how many we'll have with so much in question. China has had some decent economic news recently and if that continues, Janet Yellen would have reason to raise rates from a global perspective. Europe remains very weak so they aren't providing any impetus for the Fed to make a move. With Retail Sales not particularly strong stateside, our economy still has lots of tenuous areas that don't warrant a rate increase. The fact that there was no agreement reached over the weekend to put a freeze or ceiling on oil production means that oil will likely come down in price over the short term as production is ramped back up now that the Kuwaiti oil strike has been resolved and decreasing oil prices will also help interest rates.
From a technical standpoint, the RSI is pushing the oversold threshold even though the FNMA benchmark bond has been trading in a very narrow range of about 40 basis points over the last 14 business days. At 102.58 it is 14 basis points above the 1st level of support and 16 basis points below the 1st level of resistance. Tomorrow, in addition to Jobless Claims, we get the Philadelphia Fed Manufacturing Survey which is expected to come in 2.5 points below the previous reading. We also get the Leading Economic Indicators. Low readings on these points would have a slightly positive impact on bond prices (meaning it would be good for rates) but the big thing is going to be oil. While there is an increasing disconnect between oil and stocks, thanks in part to earnings season, the connection between oil and bonds is still pretty strong. If oil heads down over the next couple of weeks, I would expect bonds to be the beneficiary. I would float with caution and make sure that you have access to my app - buyerZapp - so that if the market moves against you, you will be able to get my lock alerts and hopefully lock before any price changes.
On a side note, the FNMA and GNMA bond had very different performances yesterday with the FNMA closing down 3 basis points and the GNMA closing down 27 basis points. FNMA is the bond that is used for conventional loan rates and GNMA is used for FHA and VA rates. Make it a great day.