Bond Prices Climbing

Mortgage bonds had a day off yesterday to celebrate Columbus Day. However, bonds opened strong after bouncing off the 200-day moving average as we predicted in Friday’s market update.  After this level held, it strengthens the floor and hopefully represents the bottom of a strong downward move that lasted for many weeks and drove mortgage interest rates higher.  Given that stocks are again setting new all-time high records, we may see mortgage bonds fall back down to once again test the 200- day moving average.  Depending upon the continued strength in stocks, this could eventually force bond prices below this critical level.  That would be an extremely negative sign, as the 200 DMA generally represents the longer-term direction of mortgage interest rates.  We are much better off being above this than being below.

The NFIB small business optimism index fell 2.3 points in the month of September to 103.0.  This was much worse than the 0.1% increase anticipated by the markets. It seems that most small business owners still feel we will see some repeal of Obamacare, even if the change is minimal.  If this does happen, it may be more of a re-branding of sorts.  It will likely provide great incentives for states in which their leaders are currently holding out in exchange for their vote.  As unfair as that seems, that’s just the way the political machine works.  It’s how it was originally passed and will likely be the key to have it modified.

With bond prices climbing up to the top of a channel, we will revert to a locking bias.