27 Mar Great time to lock
After the House failed to pass the repeal and replacement of Obamacare, investors are showing their displeasure by selling off stocks. The overall consequence to the Republican party cannot be overstated, as this failure now creates an elevated level of doubt that they will be able to pass the Corporate Tax Reform bill that is expected to be brought forth in the near term. Republicans were hoping to show that savings from the repeal of Obamacare could then justify a net-neutral impact to the revenue lost as a result of reducing corporate tax rates. It would allow for the tax bill to pass with just 51% of the votes. Now that Obamacare is once again victorious, tax reform will face an uphill battle.
Mortgage bonds bounced above their 50-day moving average, and were halted exactly on their 100 DMA. Since bonds have not been above their 100 DMA since early October of last year, it seems unlikely that they will be victorious in the current battle. A look at the 10 Year Treasury Note shows a similar challenge. Although yields have fallen below their 100 DMA, they are now approaching a level that they have unsuccessfully battled four times since mid-November of last year. Similarly, it’s unlikely they will win the battle this time around. In fact, in each case bonds lost significant ground in the trading days following the battle at current levels. If history repeats itself, we could see yields move higher once more.
Given the strength of current levels, we will suggest a locking bias.