Locking bias

Mortgage bonds started the day strong but have since lost some steam.  In the early moments of trading, bonds pushed above a key ceiling of resistance. 
However, they were pushed back beneath shortly after.  We don’t anticipate that bonds will make much of a run today ahead of tomorrow’s Fed interest
rate decision which will be followed by an FOMC Press Conference.  We anticipate that Fed President Janet Yellen will essentially buy more time
before the Fed raises short term interest rates.  The key will be in the comments she makes following the statement.  We anticipate an extraordinary
amount of volatility in the bond market as investors analyze each word she says and react based on the emotion created. 

The pressure on the Fed is mounting.  With manufacturing way down, GDP running about 2%, retail sales weak, most job creations below the median income
and with deflationary concerns, the Fed is in no position to confidently raise interest rates.  On the other hand, with each leg higher the stock
market moves the risk of a significant bubble popping increases.  The best way to slow an overheated stock market will be to raise short term
interest rates.  The combined pressures put the Fed in a lose – lose position.  If they raise rates, the economy may further stumble. 
However, if they fail to raise rates the stock market could reach unbearable levels and pop.  This is not an easy position for the Fed to be in. 
The markets realize the risks and will likely show their concern by making rash decisions.

Choosing to float in this market brings significant risk.  Therefore, we will maintain our locking bias.