Float cautiously

Mortgage bonds are holding right near multi-year high levels.  This puts mortgage rates right near lows matching back into 2013.  The current phenomenon is heavily influenced by money flowing out of economies such as Japan’s and Europe’s, where yields on their investments are near 0% or below.  This is clearly creating a tremendous opportunity for people looking to refinance or purchase a home.  Further, bonds are in a clearly defined upward channel that could actually take them even higher.  However, at the current levels we face a significant ceiling of resistance.  If bonds are able to break above the current ceiling, hold on tight.  The rush of people looking to refinance or purchase will increase, which will extend time lines for most mortgage transactions. 

The US stock market continues to show signs of weakening, with the S&P 500 down over 16 points already today.  This is also adding to the influx of money into the bond market, as investors look for a safe haven to place their cash in the midst of a volatile stock market.  Stocks actually have a fair amount of room to continue their fall before hitting their next floor of support provided by the 25 day moving average.  If the 25 DMA fails to hold, the 200 DMA is just a bit lower, which should help provide some stability for stocks.  However, when stocks fall, they tend to fall quickly. 

With bonds near multi-year lows, the risk of floating is elevated.  There becomes a point where the potential near term gain is outweighed by the risk.  There is no need to rush to lock in immediately.  However, if you choose to float, do so only if you ae able to watch the markets closely.  Sentiment can reverse quickly.