Mortgage bonds continue to show strength, holding their position just beneath a critical ceiling of resistance that has held mortgage interest rates back from making further improvements for months. Considering stock prices continue to climb, this is outside of the behavior we would typically expect. Since stocks and bonds both compete for the same investment dollars, we generally see bond prices fall when stocks rise. With the bond market showing strong technical signals, it will be interesting to watch and see if prices can break above resistance. Keep in mind that breakouts are the exception and not the rule. For now, we need to play the odds. Remember that the past six times bond prices have reached this level, it was immediately followed by a sell-off. If history repeats itself, rates will soon have upward pressure.
With today being another slow day for scheduled economic reports, markets will trade heavily based on the technical outlook. Stocks are once again at record high levels, which could add upward pressure to mortgage interest rates as the day wears on. With mortgage bonds at a critical level, we can expect bond prices to break in one way or the other in the near term.
We will maintain a locking bias.