Locking Bias

After the long declining month of August, stocks are up on the first trading day of September.  Investors are taking the Labor Day weekend and a delay in a military strike on Syria as some of the reasons to push stocks higher.  The ISM report for August was above expectations, indicating that manufacturing has picked up after being hurt by the drop in government spending cuts.  A big merger between Microsoft and Nokia’s mobile phone business will put Microsoft in the running against Apple and Google in the smart phone race.  All this positive economic news has pressure on mortgage bonds, which are deeply underwater at the moment.  Friday will be another big event with the Labor Department’s monthly job’s report, but bonds look like they are headed back down to the low side of the trading channel.  This move lower in bonds is pushing interest rates back up again, so we will suggest a locking bias at this time.  We dully anticipate bonds to drop down to the next floor of support, which is about 100 basis points below where bonds ended at the close on Friday.