Mortgage bonds continue to show strength and are now pressing up against the next ceiling of resistance. If they can make a decisive break above this level, there is more room for bonds to climb higher before hitting the next ceiling. Whether or not this happens will be influenced by the direction of the stock market, which has been flat so far this morning. If momentum in stocks start to build, we could see bonds be held back from making additional gains in the near term. However, if stocks fall from the frothy levels they have recently achieved, mortgage bonds will likely benefit.
With today being a quiet news day, bonds will trade heavily based on the technical picture. Although bonds remain in an upward trading channel, they are currently vulnerable due to the strength of the overhead ceiling combined with current pricing being near recent multi-month highs. Based on that, we are likely now near the best we can reasonably expect mortgage interest rates to be in the near term. Although anything is possible, it has been since before President Trump’s election that mortgage rates were much better than they are currently. Recent history has proven that current levels are followed by sharp declines in the price of mortgage bonds.
Given the risk associated with floating while near the best pricing since last November, we will now switch to a locking bias.