It’s Fed day! But yet, markets have little anticipation over the seemingly unimportant conclusion that is scheduled for noon MST. It is pretty much decided that there will not be a Fed rate hike, so the reaction should be minimal. With many expecting December as the first possible hike of 2016, it should be “more of the same” today. If there is any language in the announcement that indicates a shift in the plan, we could see some reaction to the news. Otherwise, we can expect status quo.
Mortgage bonds once again hit the bottom of the channel this morning, but have since made a strong bounce higher. They are now testing the ceiling of the 25 day moving average. Although there is a chance it will break above this critical level, it seems unlikely to happen ahead of the Fed announcement. If the Fed statements tell a story of a weakening US economy, we could see bonds gain the strength needed to move higher. Watch the markets closely as we approach the noon hour.
This is a heavy news week and one that could provide data that will help determine the near term direction of mortgage bonds. It is highly probable that bonds will break out of the narrow sideways channel in which they have been traveling. Since bonds remain susceptible to a move lower, the safe play will be to lock. If you choose to float, do so carefully and only if able to watch the markets closely.