Mortgage bonds remain trading near the top of a channel with a very strong ceiling of resistance that has kept interest rates from making improvements below current levels. With investors watching closely the developments surrounding increasing tensions between the United States and Iran, we could see an eventual “flight to quality” where investors sell stock holdings in mass and move into the safety of the bond market. With signs now pointing towards a retaliatory response from Iran, I see this as probable in the weeks or months to come.
Tomorrow we will receive the first of two estimates of new job creations in the month of December, with ADP set to release their report tomorrow morning. Although this is considered an important report, Friday’s Bureau of Labor Statistics (BLS) report holds precedence. Markets are anticipating about 160,000 new hires, which to me seems a bit optimistic. Although I could be wrong, I believe that higher paying job growth could have been weaker in the month of December. We will update further on this after tomorrow’s ADP results are reported.
Unless bonds are able to break the strong ceiling of resistance, we will maintain a locking bias.