Bonds still lacking conviction, locking bias

Mortgage bonds have started their day to the downside and appear poised to test the bottom of the sideways channel they have been in for weeks. The weakness in bonds has been fueled by a ceiling of resistance that seems too strong for bonds to break through at the moment. It will likely take a significant move lower in the stock market for bonds to muster the strength to make another run higher. As long as the 200 day moving average continues to hold up as support, a move to the bottom of the range can be a healthy one. It could provide bonds some time to regain their strength while investors look to buy back in when bond prices have settled a bit lower.

Housing Starts for the month of September were reported to be +6.5% to a 1.206 million unit annualized pace.  This is a strong reading from a sustainability viewpoint, meaning that it is a respectable number that can reasonably continue. A report much higher could create fear in the market that housing is soon to slow.  On the other side, we did get a report that building permits slowed more than anticipated. However, this is somewhat expected as fewer homes start as we move into the chilly winter months. With Consumer Confidence at irrationally high levels, it is reasonable to assume people will continue to build new homes.

With bonds still lacking conviction, we will maintain our locking bias on loans that need to close in the near term.