Locking bias

Locking bias

Bond traders who place trades based on Fibonacci principals are smiling right now, after bonds bounced lower from the 50% retracement line.  Essentially, the principal states that in a changing market, there will be a point at which the move comes to an end and then prices will readjust to 50% of the move before resuming the trend.  With mortgage interest rates rising sharply since the election, they have now recovered 50% of their overall loss and can now resume the upward trend once more.  This is considered a healthy move, and sets the path for interest rates to reach a peak that was even higher than what was reached towards the end of November.  However, we must wait and see.  It is not a foregone conclusion.

 

Retail Sales for the month of December were released this morning, showing an increase of 0.6%.  Although slightly lower than the 0.7% anticipated, it is still a strong number.  Retail Sales, excluding autos, increased 0.2%, which was also lower than the 0.5% anticipated.  Since both were below expectations, they are not significant drivers of the sudden downturn in bond pricing.  I believe that to mainly be attributed to the Fibonacci levels indicating a reversal in the upward channel. 

 

With bonds apparently peaking, we will suggest a locking bias.