Great risk in floating

Mortgage bonds found stability yesterday and were actually able to muster the strength to break above the first layer of overhead resistance in the charts.  Although the significant resistance is still ahead, yesterday gave the market hope that mortgage bonds have found their bottom and can now focus on moving higher.  The small move higher in bonds is correlated with the stock market reaching a new pinnacle and then cresting lower.  A continued pull back in the stock market is what mortgage bonds need in order to maintain the move higher in price.  However, should stocks decide to continue their run higher we will likely see mortgage bonds fall once more.

It was reported yesterday that oil inventories are much higher than expected.  While the market anticipated 3 million barrels in supply, the actual report showed that oil inventories are now at 14 million barrels.  This adds significant downward pressure to oil prices, which are once again beneath the psychological $50 per barrel barrier.  Although this will help soften the blow at the gas pump, it is not a healthy indication for continued economic strength.  As prices soften, more energy jobs will be lost.  Further, it will be a headwind for the US stock market and could threaten growth.  We haven’t yet seen the bulk of oil related job losses hit the market yet.  However, they are certainly coming.

Mortgage bonds are again showing signs of weakness this morning.  There is great risk in floating.  We are still hopeful that bonds will remain above the bottom they found a couple days ago.  If we do break beneath support, lock quickly.  There is a great deal of room for bonds to fall lower.  Therefore, watch closely if you choose to float.