27 Dec Locking bias
After forming a small upward channel over the past seven trading days, mortgage bonds made a break lower this morning. We were hoping that the recent improving trend would have the strength to drive mortgage bonds out of the strong downward channel that has moved mortgage rates higher since early November. At this point that doesn’t appear to be likely. The last few times bonds bounced lower after hitting the top of the channel, pricing deteriorated sharply and caused mortgage rates to take a step higher. If bonds aren’t able to hold on to current pricing, that seems to be the likely outcome once more.
This will be a relatively slow week for economic reports, so markets will heavily be driven based on the technical picture. With the stock market continuing to drive higher, this will create a headwind for mortgage bonds. The Dow Jones Industrial Average is currently sitting just beneath the 20,000 mark and seems destined to cross this barrier in the very near future. The performance of the US stock market has been exceptionally strong since the election of incoming President Elect Donald Trump. This has been one of the primary reasons we have seen mortgage interest rates drive higher since the election.
With mortgage bonds still trapped in the strong downward trading channel, we will maintain our locking bias.