17 Oct Bonds will Break Out Soon
It’s more of the same for mortgage bonds, with stock prices continuing their path towards their all-time high records and mortgage bonds bouncing from the floor of support up to the ceiling of resistance. However, the channel in which mortgage bonds are trading is narrowing and bonds will soon be forced to decide one way or the other. Generally, when bonds make a break to one direction or the other, the move is exaggerated, and we see prices change quickly. At this point, it’s too early to say which direction bonds will move. If stocks continue to climb, we will likely see bond prices fall and mortgage interest rates move higher. However, if stocks begin to struggle, the opposite will likely occur.
Economic news of the day was mostly bond friendly. Most importantly, was the housing starts report that was well below expectations. However, the report was offset by a stronger than expected building permits report which showed more applications for permits than the market anticipated. It’s hard to have a clear understanding of where the housing market will be heading when we receive conflicting information.
With mortgage bonds still trapped within a tight range, there is great risk in floating. I am hopeful that bond prices have found their short-term bottom. However, there is no way to say for sure. So, we can hope for the best and be prepared for the worse. Only float if you can closely watch the markets and are willing to take a little risk.