17 Mar Locking Bias
Mortgage bonds are gaining back some of the ground they lost yesterday, and are now sitting just beneath multi-layer ceilings of resistance. After breaking out of their downward channel a couple of days ago, it would be an exceptional show of strength if bonds are able to make their way above the current ceilings. Since the general rule is that people should lock when at the top and float when near the bottom, the odds are that bonds will be held back from further advances in the near term.
Since today is a relatively slow day for economic reports, the markets will trade heavily based on the technical picture. The limited news that was released this morning wasn’t too bond friendly. For one, the Consumer Sentiment Index showed another strong reading, rising from 96.3 up to 97.6. Unlike other confidence measures, the Consumer Sentiment Index has dropped a bit from its post-election highs. However, it continues to be exceptionally strong. Overall, the psychology of the consumer is one of the greatest ways to predict the current state of the economy. When consumers are feeling high levels of confidence, they spend, which grows the economy.
Bonds are currently held beneath a multi-layer of overhead resistance. Although there is a small chance they will break higher, it isn’t likely. Therefore, we will maintain our locking bias.