Mortgage bonds remain trapped in a nasty downward trading pattern, continuing to add upward pressure to mortgage interest rates. In fact, bond prices temporarily fell beneath the floor of support that has been in place for well over a month. The good news is that the 50-day moving average was there to stop the fall, at least for now. If this support line continues to hold, we can expect to see mortgage bonds begin to make a technical break higher. However, this largely depend upon what happens to stocks, which are so far pointed lower in pre-market trading. If the 4-day winning streak stocks have been on come to an end, this would be good news for mortgage interest rates, and will likely keep rates from moving higher. We will have to see how this plays out.
There are no critical economic reports scheduled for today, so the technical outlook will likely drive the markets. Given that bond prices are trading at the bottom of a trading range, this could be good news for mortgage interest rates. The challenge will be that the 25-day moving average will now serve as a ceiling of resistance that could prove too strong to penetrate. If so, we will see more weakness develop in the bond market.
If it weren’t for the 25-day moving average now serving as a ceiling, a floating stance would be prudent. However, this ceiling poses a level of risk that many may want to avoid. Therefore, a locking bias remains prudent.