Be prepared to lock….

Stocks are pointed lower in premarket trading while mortgage bonds continue to make small gains within a steep upward price channel. So far, mortgage bonds have remained above the multi-layer support that is critical for bonds to see rates continue to improve. However, it’s important to once again point out that mortgage bonds haven’t been able to maintain a position above their 200-day moving average since before the presidential election in November. Therefore, we remain at great risk of experiencing a pullback from current levels.

Today is a slow economic news reporting day, so markets will trade heavily based on the technical picture, which is so far looking good for the bond market.  Next week will bring some important news updates, highlighted by a Fed meeting and interest rate announcement. We don’t anticipate the Fed to raise rates now, nor do we expect an announcement of “Quantitative Tightening.”  It will likely be the September meeting before the Fed announces the start of the pull back.

If bonds remain above the multi-layered support, we will maintain a floating bias. However, if bond prices weaken, be prepared to lock.