Mortgage bonds suffered significant losses on Thursday, stopping right on their 200 day moving average. Thankfully, they opened this morning higher, bouncing off of this important floor of support. The 10 Year Treasury Note also has a similar story, with yields moving up to the 200 DMA on Thursday and then dropping lower to start the day today. Although it is too early to say that mortgage bond prices have hit their short term lows, it is encouraging to see them bounce higher.
The stock market has again shown its resilience, and could be within striking distance of reaching all-time highs this week. The back and forth flow of money between the stock market and the bond market has been significant lately. Generally speaking, when on is doing well the other is suffering. The recent volatility provides great opportunities for short term investors to profit, which increases volatility as the “Day Traders” magnify the swings. This makes it easier to predict short term markets, but adds complexity to longer-term predictions. With economic news bouncing from good one day to bad the next, it is hard to know when to take long term positions in the market. Many more conservative investors are still hesitant to make bets on what seems to be a heavily inflated stock market.
With mortgage bonds starting the week with a bounce above the 200 day moving average, we will suggest a carefully floating bias today. Economic news reports heat up as the week moves on, with corporate earnings having the possibility of swinging stocks in one direction or the other. If the earnings reports are strong, the stock market will likely move higher, which will push interest rates higher as well. Watch the markets closely, and be ready to lock if bond prices are unable to sustain the current upward path.