Bond Prices Against a Strong Ceiling

After breaking above their 25 day moving average yesterday, mortgage bonds are now trapped in a tight trading range between the 25 and 50 day moving averages. Since the 50 DMA is a strong ceiling, the path of least resistance seems to be for bond prices to move lower. That could add headwind to mortgage interest rates as the day wears on.

Next week is a significant one for mortgage bonds, highlighted by the Fed announcement on Wednesday.  The Fed will raise interest rates by 1/4%, which will be the second time rates have increased this year.  Markets will be closely listening to statement made filling the announcement, where they could step up the rhetoric of how strong the US economy is progressing.

Next week will also bring news of consumer inflation.  Given the level of upward wage pressure, we could soon see a spike in inflation.  With inflation being the arch enemy of interest rates, this isn’t good news.

Given the continued weakness, we will maintain our locking bias.