Very careful floating bias

After Friday’s trading took mortgage bonds from the top of the upward channel they have been trading within, all the way to the bottom, mortgage bonds are climbing higher so far this morning.  With bonds remaining within the upward channel, mortgage interest rates are in an overall improving trend.  However, with a difficult ceiling of resistance now just overhead, bonds will be forced to decide to either continue to move higher or be pushed lower.  The outcome will be heavily influenced by the US stock market as well as the 10 Year Treasury Note.  After reaching 19,999.9, the Dow failed to breach the 20,000 level on Friday and are pointed lower in pre-market trading this morning.  That could help support mortgage bonds and allow them to muster the strength to break through the ceiling of resistance.  We’ll have to wait and see.

Commodity prices moved lower worldwide, with oil prices falling 2% since Friday.  The commodity market seems to be taking the place of bonds as a way for investors to express their political economic feelings.  Since commodities are easily traded worldwide, they represent an overall global feeling regarding the current state of the economy.  With continued concern of a hard “Brexit”, European interest rates could be slow to move higher.  This will help US interest rates from rising too fast, as global competition will continue to influence bond prices here in the US.  If oil and other commodity prices remain low, it will be hard for mortgage interest rates to make too sharp of a climb higher. 

If mortgage bonds remain within the upward trading channel, we can carefully float.  However, be careful.  Sentiment can change quickly.