Cautiously float

Global economic news is putting a drag on the US stock market this morning.  Weak GDP estimates out of both China and Japan are causing challenges in US markets.  Fears abroad create concern for slower demand for globally traded US goods and services.  Here at home, McDonalds missed earnings fairly significantly and gave a warning to expect lower profits in the near future as well.  This is likely a situation created by a strong US dollar which is causing US goods and services to be more expensive globally.

Following Friday’s surprisingly strong US job growth report, the stock markets set new highs once again.  The stock market has been incredibly resilient, with weakness followed by relentless strength.  At some point the stock market will be forced to take a breather.  When that does happen, mortgage bonds should benefit.

The 10 Year Treasury Note Yield is sitting just below a duel level of resistance at the 25 and 50 day moving averages.  If these critical levels fail to hold we will likely see mortgage bonds suffer and interest rates push higher.  However, if the 10 year note can hold, mortgage bonds can have an opportunity to bounce higher.

Today will be a quiet news day, so bonds will likely be heavily influenced by technical factors.  Although bonds are held by support at the moment, there is still is a general feeling of fear in the bond market.  This increases the risk of floating.  However, with strong support helping with both mortgage bonds and the 10 Year Treasury Note, we will suggest a floating bias.  Should support not hold, we will immediately switch to a locking bias.  Also, keep an eye on the 10 Year Treasury Note, for its performance in the near term will greatly influence the short term direction of mortgage interest rates.