Brutal bonds: Locking bias

 Mortgage bonds fell sharply yesterday, breaking beneath multiple layers of support like a hot knife through butter.  The move lower was sparked
by continued fear of a Federal Reserve interest rate increase.  Based on the extreme movements that continue to happen, it seems that a rate increase
would already be included in current pricing.  However, the bar keeps moving lower.  It would likely be a better thing for mortgage rates if
the Federal Reserve were to move short term interest rates higher.  This seems to be a “Sell the rumor buy the news” type of scenario.  This
is similar to the move we had in mortgage rates back in May of 2013 when the market learned of “Tapering QE3.”  Once QE3 ended, mortgage rates improved
significantly.  This could happen once again when the Fed raises rates. 

Today is a slow economic news day, so the technical picture will continue to drive the markets.  One report released this morning was from the NIFB. 
They reported that the Small Business Optimism Index for the month of April came in at 96.9.  This is a very strong reading and showed a bit of
improvement from the prior month’s 95.2.  This is another sign that the US economy continues to grow and strengthen. 

Mortgage bonds are now trapped in a very wide range, capped by the 200 day moving average.  They tried to break above this resistance and were quickly
pushed lower.  This is not a good sign.  Because the technical picture is as weak as it is, we will continue to maintain a locking bias. 
This move higher has been brutal.  Hopefully bonds will find some strength in the near term to stop the bleeding.