After once again getting close to testing the 200-day moving average, mortgage bonds fell lower in early market trading this morning. The continued failure to break above this critical level is a negative sign for the near-term direction of mortgage interest rates. The more failed attempts made, the weaker bonds become. Eventually, the lack of strength will cause investors to lose hope and sell their holdings while at the 200 DMA. For the rule would state that it is more likely for bonds to break lower than break above this level. Once the selling starts, it usually causes a dramatic move lower as people rush out at the same time.
This is an extremely light week for economic news, with the only real significant report being Durable Orders. With Thanksgiving later in the week, we can expect trading to lighten as we move closer to this day. As that happens, the market moves will be less meaningful, and volatility will increase. None-the-less, we could easily see bonds continue to fall lower, so we must play this week out carefully.
Given the continued weakness, we will maintain our locking bias.