Bond Prices Bounce Higher, For Now

Mortgage bonds got a nice bounce this morning, which was welcomed news following a significant drop in the price of mortgage bonds last week. This slight improvement seems to be more technical in nature rather than a sign of better days to come. When bond prices are in a strong downward trading channel, there will be points in time where we see retracements back that recover a portion of the losses before making another run lower. This feels to me to be a temporary retracement that we can only expect to see last until bond prices hit the top of the trading range. Now if they can make a break above the ceiling, it will be a different story. However, I wouldn’t count on that happening.

The recent move higher in mortgage interest rates and the 10-Year Treasury Note yield has led to the greatest losses in the bond market since the market experienced significant losses in 1976. Money managers are continuing to flee the longer-term fixed income market, which combined with the Fed slowing their purchases, has left the market forced to offer higher interest rates to attract investors. It’s hard to say at this point when an equilibrium will be reached where bond investors feel comfortable stepping back in. Until that happens, we can expect to see mortgage interest rates continue to climb higher.

We will continue to maintain a locking bias.