12 Mar Locking bias
Mortgage bonds have moved in a sideways pattern long enough to break out of the downward trend they were in. It has been a nice recovery the past few days which has been largely fueled by weakness in the stock market. However, today stocks are in rally mode as they look to recover some of their recent losses. After having a strong opening, bonds are now losing steam in wake of the strength of today’s stock market. Also, bonds hit the top of their trading range and were not able to break through. Combined, the forces of a strong stock market and bonds facing significant overhead resistance make a continued rally in today’s bond trading unlikely.
Initial Jobless Claims for the week ending 03/07/2015 were reported at 289,000. This was well below expectations and represents a decrease of 36,000 from the prior week’s upwardly revised report of 325,000. Volatility in Jobless Claims has increased greatly since the drop in oil prices. With oil prices finding some stability the past few weeks, this has created more stability for some energy related businesses. However, the prices of oil are still well below where they need to be for most to remain profitable. If prices fall again we will certainly see many more rigs shutting down.
With bonds at the top of a trading channel we will advise a locking bias. If bonds do eventually break above this support they have a great deal of room to improve. There is no way to predict for certain when that will happen, if at all. Therefore, the safe play is to lock, as bonds have fallen each of the 10 or so times they last reached this level.