20 Mar Locking bias
Mortgage bonds are really trying to make a break above the current channel. However, bonds now have 4 failed attempts to do so. It seems unlikely that there will be a 5th. Meaning, bonds will likely either break out this time or they will fail and move towards the bottom of the channel. If bonds do manage to break out, that would be an exception and not the rule. Once again, the rule is to lock when at the top of the channel and float when near the bottom. Based on this, we should plan for the worst and hope for the best. If bonds do happen to make a break higher, it will be a meaningful move that could lead to a nice improvement in mortgage interest rates. So, let’s hope for that!
Today is a quiet economic news reporting day. In absence of news, we rely heavily on the technical factors. Although the 10 Year Treasury Note yield is below 2.5%, there is a strong floor of support preventing yields from falling further. It could take more significant news to provide the momentum needed to break lower. In the meantime, we hope to at least hold on to current levels.
Given the lack of data to spur a rally in the bond market, we will maintain our locking bias.