Mortgage bonds are slightly higher so far this morning, following news out of Europe that there is another breakdown in the Greece debt negotiations.
If a deal is not finalized and Greece is forced out of the European Union, they would have the ability to lower their currency to reduce their debt.
This makes holding their debt a much higher risk and is driving yields higher in other European Countries such as Spain, Italy and Portugal.
The German Bund is considered the safest European debt (similar to the US 10 Year Treasury Note), and yields on the Bund are holding flat. This
is a positive sign for the US market, which is helping to drive yields on the 10 Year US Treasury Note lower.
Bonds are currently trading in a wide range. After approaching the top of their channel they were forced lower already this morning. The bond
market’s inability to break above this level in the last seven trading days shows that this will be a difficult resistance level to break. With
a longer term downward channel in place, the current stability in the bond market could be head fake while the bond prepares for its next move lower.
It is imperative for bonds to make a run and break above the current ceiling that is holding them back. Otherwise, you can count on a more dramatic
move to the downside in the near future.
With bonds still lacking the strength to make a run higher, we will maintain our locking bias. If you choose to float, watch the 10 Year Treasury
Note closely. A break beneath 2.33% in the yield would be a very encouraging sign.