China AGAIN???

Mortgage bonds were able to successfully break above the ceiling of their 25-day moving average yesterday. However, that victory was short lived. Bond prices are down sharply this morning, following another statement from President Trump regarding the trade war with China. Once again, stock investors are being controlled by the back and forth news surrounding the trade war, much like a puppet on Sesame Street. Although this time may be real, and not another episode of cry wolf, the timing is fascinating. It so happens that this news is released just hours after Democrats announced an investigation on President Trump, with their hoped-for goal being impeachment. When politicians are in hot water, they quickly look for stories to overshadow the negativity on the news networks and in households across the country. Eventually, we’ll see if this is real or just another distraction that will be followed by renewed bad news regarding progress between the US and China.

From yesterday, the mortgage bond charts turned from showing strength in the bond market to overwhelming weakness. Of course, this was mainly driven by the statement from President Trump surrounding progress with China. But now, with the bond market pointing to continued price drops (higher mortgage interest rates), we now must wait and see if bond prices are able to get back above their 50-day moving average. This is a critical step and will greatly influence the near-term direction of mortgage interest rates.

Given the negative technical picture, a locking bias is prudent.