22 Aug Good day to lock
Mortgage bonds are trading in a tight range, trapped between their 25 and 50 day moving averages. It’s a quiet news day, so the technical picture will heavily influence the market. If bonds happen to fall below their 50 DMA, we will likely see about a 40 basis point fall down to their 100 DMA. This would be a terrible sign for the health of mortgage bonds, as bonds haven’t challenged this level in months. On the other hand, if bonds are able to break above their 25 DMA, they could be in the clear for a nice run higher. As bonds continue to get squeezed between these two converging lines, they will be forced to make a decision one way or the other.
Talk of a second Fed rate hike is dominating the airways. This headline is fueled by Fed members sharing their opinions in public forums. They cite a near full-employment job market combined with higher levels of inflation. The strength of the US stock market certainly isn’t helping support the Fed holding out longer for another rate hike. However, if you think back on 2006, before the economic meltdown, the current environment shares some common characteristics. In fact, the exuberance in the stock markets was slow to change as evidence of a housing and economic collapse were becoming more apparent. At some point, our economy will soften. The only real question is ‘when?’.
The back and forth motion in the bond market continues today. Recent history says that good days are often followed by bad days. If that trend continues, today will be a great day to lock.