11 Jun Hand on the trigger
Even in light of news that should have helped mortgage bonds improve, they had subpar performance again yesterday. However, bonds are a bit higher
today. This is following news released this morning that showed more strength than anticipated in the US economy. This is another indication
that bonds are trading based on the technical picture and not based on reality. The emotion of bond traders has primarily been to blame for the recent
spike higher in mortgage interest rates. Generally, bonds would improve on negative economic news and deteriorate when strong economic news is
reported. At this point, there is no rhyme or reason for much of the volatility.
Bonds are still in both a short term down channel as well as a separate longer term down channel. At this time, bonds are at the very top of the short
term channel looking to make a break higher; whether or not they can muster the strength to move higher remains to be seen. Even if they do break above,
the longer term down channel is still clearly intact. This would allow bonds another 100 basis points to move higher before reaching the top of the
long term channel. Even in times of a longer term trend, there will be short term opportunities to take advantage of small price improvements when
locking a mortgage rate. This is an example of such opportunity.
With bonds making a run higher today, there is no rush to immediately lock. However, there is great volatility in the market, so the risk of floating
is higher than normal. Watch the markets closely and be prepared to pull the trigger should a pullback in bond pricing occur.