Bond Prices Facing Resistance

Mortgage bonds failed to advance yesterday, as bond prices softened. Fortunately, prices remain in an upward trading channel, at least for now. However, they are currently at the bottom of this channel, so we could see this change. With a strong ceiling of resistance not too far above current levels, we will soon learn if we will see rates improve or move a bit higher in the near term. This will heavily be influenced by the 10 Year Treasury Note yield, which has fallen to its 100-day moving average. If we see a break beneath this critical level, we will likely see mortgage interest rates also improve. But because this is a strong floor of support, we shouldn’t plan on this happening.

Next Friday we will receive a report on the job market from the Bureau of Labor Statistics (BLS). Given that we have seen an uptick in Unemployment Claims in recent weeks, it will be interesting to see if the labor force is weakening. The current Unemployment Rate sits near a 50-year low, at 3.7%. Will we finally see this important indicator move higher; I’m not sure. But I do know that history shows that after hitting a low point of a cycle, this rate is almost certain to take a steep jump higher. That would indicate the beginning stages of a recession. I don’t believe we are there quite yet. However, I do believe that time is not too far into the future.

Given the resistance levels the bond markets are facing, we will maintain a locking bias.