Mortgage bonds are currently sitting right on a crucial level of support. Looking back over the recent past few weeks, this level has held not just one or two times, but seven times! This proves that a break below will not come easy. However, should that happen, it will be a highly negative for mortgage bonds. Coincidentally, the 10 year treasury yield is also pressuring right up against a critical level. If one breaks, it is likely the other will break.
The stock market is relatively flat so far this morning. However, in looking at the charts, there is clearly strength in stocks right now. I see no reason for the stock market to soften in the immediate future. As weather heats up, there will be increased probability of a continued upward movement. As this happens, both mortgage bonds and the 10 year treasury market will deteriorate, pushing interest rates higher in the process.
Even though we are now sitting right it, a break below the 200 day moving average today is not expected. However, it is always a possibility. There is a weakening bias in bonds, with only technical factors keeping interest rates from moving higher right now. There is most definitely risk in floating a rate today. Therefore, we will suggest locking. If the 200 DMA does not hold, watch for mortgage rates to take a steep climb higher.