Bond Prices Reverse to the Downside

Mortgage bonds topped out at their 100 Day moving average yesterday and have been in a downward spiral ever since. The 100 DMA is a formidable moving average that bonds have not been able to breech since September of last year.  Once this level was hit, the technical indicators turned negative quickly as bond prices fell.  Apparently, the concerns over the crisis in Italy are lessening. However, it seems to me to be more a technical move higher followed by a technical move lower.  From this point, now that we have essentially lost all gains from yesterday’s rally, we can hope that the 10 Year Treasury Note yield remains beneath the critical level of 3.04%.  As long as yields remain below this level, mortgage bonds have a chance of stabilizing ahead of Friday’s Bureau of Labor Statistics (BLS) Jobs Report.

ADP released their estimate of new hires for the month of May.  Surprisingly, there were only 178,000 new jobs estimated, which is below the 187,000 the market was anticipating. Further, there were downward revisions to April’s report, falling from 204,000 down to 163,000. Friday will be the more important report from the BLS. That is the potential market mover that could impact the near term direction of mortgage interest rates.

The second look at First Quarter Gross Domestic Product (GDP) came in at an annualized rate of 2.2%. This is below the 2.3% consensus and below the 2.3% rate as per the last report.  Although this is a significant report that should be helping the bond market right now, it not enough to reverse the technical move lower.

With bond prices unable to break above their 100 day moving average, we will suggest a locking bias.

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