Bonds Range Bound – For Now

Today is another quiet news day, with no significant economic news to speak of.  Again, this brings the technical picture into play.  With bonds now beneath their 200-day moving average, the current medium to longer term trend will be expected to be rates moving higher.  Although a significant negative economic, political or geo-political event could change that, we must make assumptions based on the current data on-hand.  Unfortunately, that isn’t showing a good sign for mortgage interest rates.

Over the past three trading days, mortgage bonds have lost tremendous ground.  They are now in a position where they have a strong support level beneath current levels, and the 200-day moving average serving as a ceiling of resistance.  This week’s news will be important, with CPI being one of the reports we will receive.  Until we have news to drive the markets, we will likely trade within this range today.

There were Fed members who spoke this morning, virtually confirming the Fed plans to hike rates one final time in 2017.  Further, the Fed is expected to make three rate hikes in 2018.  Eventually, the rate hikes will help slow the growth of the US stock market.  Although there is no sign this has happened thus far, continued hikes will make this a reality at some point.

Given the current trend, there is minimal benefit to float.  We may see small improvements in pricing, however, they may not justify the risk of floating.  We will maintain our locking bias.