Despite showing signs of weakness the past couple of days, mortgage bonds opened strong this morning. Strangely enough, they are once again above their 200-day moving average. Generally, this level is not easily broken in either direction, as a break above or below is generally viewed as a sign of a shift in the longer-term direction of mortgage interest rates. Since rates have been on an increasing trend since bonds broke beneath the 200 DMA shortly after the election of President Trump. In recent weeks, rates have improved significantly, and are now looking to possibly improve even more. Assuming bonds can hold above this critical level, that will be the case.
Today is a light day for economic reports, so markets will trade heavily based on the technical picture as well as any unexpected political news. It was confirmed by President Trump that he is in fact under investigation for the firing of ex-FBI Chief James Comey. This further complicates his ongoing troubles surrounding possible collusion with Russia. At some point, this could start to impact the US stock market. If that does happen, we could see rates improve as a result.
With bonds now once again above their 200 DMA, we can carefully float. However, with bond prices slicing through this significant level like a knife through hot butter, it doesn’t appear to currently be a difficult level to break. Therefore, only float if you can closely watch the markets. Be prepared to lock should bonds lose steam.