Cautiously float – Watch the markets carefully however

Mortgage bonds suffered losses yesterday, as investors seemed to pull money out of the bond market in search of higher returns in the stock market.  So far this morning, stocks are lower and mortgage bonds are attempting to stabilize.  With mortgage bonds now trading within a wide channel, we could see abnormally high volatility as they bounce from one end of the spectrum to the other until they decide in which direction to make a break.  As we mentioned in yesterday’s update, this is a healthy move and allows bonds to create a floor of support that could help them maintain stability when they are able to make another run higher. 

Britain’s Prime Minister, David Cameron will officially end his term today.  This marks another historic event triggered by last month’s “Brexit” that shook the world’s financial markets.  This adds additional uncertainty to the future of Great Britain, as a new leader makes their way into office.  His successor, Teresa May, will arrive at Buckingham Palace soon to begin the exchange.  Now that the initial shock and reality of a Brexit has settled, we will have to wait and see how things progress going forward.  It will add uncertainty and additional volatility to the markets as the world adjusts to its new reality. 

We maintained a locking bias as mortgage bonds dropped from near all-time high levels.  With support beneath current levels, we can begin by floating to see if bonds are able to maintain their position.  However, do so only if you are able to watch the markets closely.  Be prepared to lock in should bonds begin to fall.