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Mortgage Bonds are getting a boost higher on news that a Debt Ceiling contingency plan is being brought forth by the Treasury Department. Their plan would ensure present holders of US debt will receive their interest payments on time before making other payments, even if the debt ceiling is not raised. This move would likely push out the original August 2nd deadline to somewhere in mid-August, helping the US buy some more time as the very frustrating-to-watch Debt Ceiling debate wages on. The Bond market is sensing that a deal will get done and the government will do whatever it needs to avoid an outright default - hence the positive price action.

Last night, the House of Representatives postponed a vote on the debt and this added more uncertainty that a deal will not get done or a solution won't come by August 2nd. As a result Stocks are trading sharply lower again and this gave Bonds a boost.

Further helping Bonds and hurting Stocks was a real weak GDP Report. The first look at 2nd Quarter GDP (there are three readings before they get it right) showed the economy grew at an anemic 1.3% annual rate, well below the 1.8% increase expected. Within the report, Consumer Spending - which makes up a huge portion of GDP - rose by a dismal 0.1% rate, the slowest growth rate in 2 years, confirming that the economic recovery has indeed slowed.

And a real shocker, 1st Quarter GDP was revised sharply lower to 0.4% from a previously reported 1.9%. Even though these numbers are somewhat backward looking all you can say is…wow. This weak and uncertain economy will drive investors out of riskier assets like Stocks and into safer haven like US Bonds, thereby supporting lower rates.

Speaking of Stocks, we are closely watching the 200-day Moving Average on the S&P 500 currently around 1,282. If this index, currently trading at 1,288, moves convincingly beneath that support level a selloff in Stocks could gain momentum and thereby further help Bonds.