Bonds still lacking strength, but showing hope

Stock and bond markets are trading near unchanged levels this morning, as markets look for direction today.  With it being a quiet news day, the technical picture will heavily influence the markets.  So far, the critical yield level of 2.385% has held up for the 10 Year Treasury Note. This is helping mortgage rates hold ground at current levels. If this breaks however, we will see rates take another step higher. Overall, interest rates have increased approximately 1/4% over roughly a two-week period. This move higher has primarily been driven out of sympathy of European yields moving higher. If this trend continues, we could see rates take another significant leap higher.

GOP hopes for a new Healthcare proposal to pass the Senate are deteriorating, with Republican Senator John McCane recently saying that the healthcare bill “probably” will die. This is yet another defeat for Republicans who have not been able to live up to pre-election commitments to repeal and replace Obamacare.  Given the potential benefit this bill would have to corporate America, this news should cause stocks to fall. However, that has not yet been much of a driving force.

With bonds still beneath their 100-day moving average, the incentive to float is capped. As a result, we will maintain our locking bias. However, if bonds can muster the strength to break above this critical level, floating is suggested if you are able to closely monitor the markets.