19 Aug Locking bias
After a strong performance yesterday, mortgage bonds fell out of bed this morning. The drop was strong enough to break bonds beneath their 25 day moving average. Thankfully, the drop stopped dead on the 50 DMA, where it now rests. Although this has proven to be a strong level of support, bonds remain at high risk of a continued fall. The heavy volatility in recent week’s trading is generally not a favorable sign for mortgage bonds. Weakness could continue to drive prices lower, adding upward pressure to the APR of mortgage interest rates.
It’s a light day for economic news, so technical factors will heavily influence the direction of mortgage bonds today. Although stocks are down, the weakness in stocks isn’t helping support stronger mortgage bond pricing. Therefore, the technical picture is not looking good.
Given the weakness in the bond markets, a locking bias is advised.