20 Dec Locking bias
Mortgage bonds struggled out of the gate this morning after a strong day yesterday. With no significant economic news to drive the markets, bonds will again trade based on the overall fundamentals of the market. Given the overwhelming strength of the US stock markets, it will be difficult for bonds to make any reasonable gains again today. Considering that the stock market shrugged off last week’s Fed interest rate increase with minimal damage that was quickly recovered, bonds could be in for continued suffering for the time being. It’s likely that the DOW will break the 20000 barrier for the first time in history any day now. Crossing that psychological barrier is a big step for the market and could set investors up to continue to drive stock prices even higher.
The downward channel mortgage bonds are in is brutally strong. Bonds are now in the middle, bouncing between support and resistance. Until bonds can make a break from this trading pattern, interest rates will continue to move higher.
With bonds under pressure, locking is the safe play.