11 Oct Downward Channel Remains in Tact
After climbing up to the 100-day moving average, mortgage bonds weakened in late day trading yesterday. Luckily, the 200-day moving average held, providing a floor for bonds to once again bounce off. This is becoming an uncomfortable trend the past few days. Each time the 200 DMA is tested, it tends to weaken. Eventually, after multiple failed attempts, the floor will give. In this case, that would indicate a trend reversal, which would be exceptionally negative for the longer-term direction of mortgage interest rates.
The Fed Meeting Minutes from the last FOMC meeting were released today. As expected, it confirmed that December is still on target for the final rate hike of 2017. Further, it shows that the Fed is concerned about the persistent low level of consumer inflation, but feels that it will continue to climb as time goes on. As for the labor market, the Fed feels that will strengthen as time goes on as well. Overall, there were no bombshell statements contained within the minutes. As a result, the bond market was minimally impacted.
Bonds remain in a well-defined downward trading channel. As a result, we will maintain our locking bias.