30 Dec Locking bias
Mortgage bonds continue to hug the support line that has held mortgage rates from moving higher. However, there is a steep downward channel driving bond prices lower. There will soon be a battle that will result in bonds both holding the floor and breaking out of the downward channel, or the downward channel pushing bonds beneath the critical floor. This showdown is set to occur at some point within the next couple of trading days. Tomorrow will be a short day with the bond market closing early for New Years and of course the markets will be closed on Friday. Therefore, we can look for either an exciting end to the trading year or beginning of 2016.
Important to note are comments from IMF Managing Director and Chairperson, Christine Lagarde saying today that economic growth in 2016 will disappoint and there will be spillover effects from the Fed raising interest rates. Of course, the IMF was applying significant pressure on the Fed to hold interest rates. Therefore, it makes sense that the leader will have disparaging remarks following the Fed hiking rates. Since the IMF has a terrible track record of predicting economic futures, her words should be taken with a grain of salt.
Given the lack of strength in the bond market, we will maintain our locking bias until we have a more clear winner in the bond market fight between the bulls and the bears. Watch the markets closely. There is imminent excitement in the very near future!