Portland Mortgage Broker

Mortgage bonds began Friday’s session by slipping below the key 50-day MA support level. However, bonds roared back to not only reclaim this important level of support but also continued to surge higher following the release of tame inflation data coming from the Core Personal Consumption Expenditure Index (PCE).

The Core PCE, the Fed’s favorite gauge of consumer inflation, was reported at a benign 0.1% for the month of February while January’s prior reading of 0.3% was revised lower to 0.2%. The February Core PCE matched expectations and left the closely watched year-over-year Core PCE inflation rate at 2.0%, which is at the top end, but not above, the Fed’s desired target zone of 1-2%. Personal Spending matched expectations at 0.1% but Personal Income surprised to the upside with a 0.5% increase versus a consensus estimate of 0.3%. The jump in income weighed on the bond market’s initial reaction to the report but, as the day wore on the bond market reacted very favorably to the lower Core PCE and closed with a solid 59bp advance to close at $100.91 and 58bp above the 50-day MA support level.

Meanwhile, the stock market struggled with the news of weaker Personal Spending and a profit warning from big box retailer J.C. Penney Co. This is a signal there may be troubling times ahead for the US consumer with a corresponding negative impact on the economy. While the stock market views this as a harmful development for future corporate earnings, the bond market loves the misery. The Dow Jones Industrial Average fell 86 points to close at 12,216. The NASDAQ Composite Index dropped 19 points to close at 2,261 and the broader S&P 500 Index declined by 10 points to close at 1,315.