14 Aug Locking Bias
Mortgage bonds made a decisive move above their 25 and 50 day moving averages, and are now right up against resistance. Each time bonds have reached this level in the past 14 months, they have been pushed lower. There seems to be a formidable level that bonds just can’t seem to garnish the strength to break through. The only real hopes of improvement beyond this point would be a dramatic drop in the stock market or a geopolitical event that rocks the financial markets. Short of something major, this may be as good as things get in the interest rate market.
Initial Jobless Claims for the week ending August 9th came in at 311k. This is higher than the 295k anticipated, and 21k higher than last week’s upwardly revised 290k. Although still a relatively strong report, it is moving in the wrong direction, and may be an indication of an end to summer seasonal jobs. Many part time seasonal jobs were created early in the summer, as was shown in the strong employment reports earlier in the season. As these jobs come to an end, we will see more unemployment claims and fewer job creations in the near term.
With mortgage bonds right at the top on an amazingly challenging resistance level, there is great risk in floating. Chances are that bonds will be pushed lower from this point, unless we see a drop in the stock market. So far this morning, stocks are higher, which will act as a headwind to the bond market. In the near term, we are going to continue our locking bias. Hopefully, bonds can muster the strength to make another run higher. However, until that happens, the risk of floating is too great.