“I’VE HEARD PEOPLE SAY THAT TOO MUCH OF ANYTHING IS NOT GOOD FOR YOU…BUT I CAN’T GET ENOUGH OF YOUR LOVE, BABE.” –BARRY WHITE

And that’s exactly the song that Mortgage Bonds appear to be singing to the 200-day Moving Average recently. In fact, they’ve touched this level on twelve of the past sixteen trading sessions – and just can’t seem to get enough. But why do Bonds continue to linger around this level, and how much will be enough?

The 200-day Moving Average has historically acted as a very strong “floor of support” or “ceiling of resistance” for Bonds, meaning that Bonds generally decidedly trade above or below this line. And the current tap-dance that Bonds are doing all over this level shows that there is a bit of uncertainty in the markets – and it will take a series of economic reports that are either very strong or very weak to propel Bonds to move away from the 200-day Moving Average. Remember that strong economic news tends to move Bond prices lower, causing home loan rates to worsen – and weak economic news tends to move Bond prices higher, causing home loan rates to improve.

And last week’s news just didn’t provide enough impetus for Bonds to make a decisive move one way or the other. Retail Sales were much better than expected yet Consumer Sentiment was lower than expected, while reads on Producer Price Inflation were a bit mixed. All in all, home loan rates stayed generally flat for most of the week.

Forecast for the Week

So could this week’s slate of economic reports hold enough information for Bonds to decide they’ve had enough of the 200-day Moving Average – and cause home loan rates to make a move? The upcoming calendar features reports on Manufacturing, Housing, and Consumer Inflation…so it could get juicy, depending on the flavor of the reports.

The report that has the potential to cause the most action is the Consumer Price Index, which is simply a measure of the price levels we as consumers are paying for our goods and services. Last week’s Producer Price Index was somewhat mixed, but had a pretty hot “headline” or overall read on Producer Inflation – which sparked some chatter and concern in the Bond trading pits, because Bonds hate any kind of inflation. So if this week’s Consumer Price Index has the scent of inflation – Bond prices will likely move lower, and cause home loan rates to rise.