Mortgage bonds are trying to stage a relief rally this morning, after mortgage interest rates hit new seven year highs yesterday. Since today is a slow day for scheduled economic reports, the technical outlook will greatly influence the direction of mortgage bonds. For today, that appears to be a good sign for mortgage bonds, as a positive scholastic crossover (which we are now seeing) is appearing in the charts. This generally signals better pricing ahead.
Although bonds are experiencing a bit of relief at the moment, it seems likely this improvement will be temporary. Mortgage bonds remain in a steep downward trading channel, and may not have the strength needed to break out. In addition, there are still many moving averages not too far above current levels, some of which haven’t been penetrated since last fall. Therefore, we can assume that until the market provides news that justifies a breakthrough, mortgage interest rates will just continue to steadily climb higher.
Given the low odds of a breakout, we will maintain our locking bias.