Mortgage bonds attempted to break out of their viscous downward channel that has been in place since early April. However, the downward movement in the market was too strong and bonds were forced back lower. When bonds are in a strong downward channel, it is common that they will test the top of the channel before breaking lower and taking a step higher in mortgage rate. Last week’s move higher ended right at the top, indicating that it was just an improvement along the way of deteriorating mortgage interest rates. At this point, we must assume that the damage in mortgage rates is not going to stabilize at this time. It is likely that we will see rates worsen in the days, weeks and months to come.
The financial drama in Greece continues today, as the Finance Ministers gather to continue discussing giving more money to the flailing country. This would essentially do little more than ‘push the can down the road’ while placing a band aid on a country that is barely hanging on. With a potential bail out appearing more likely, investors in the US are using this as an excuse to push stock prices higher. Some stock indexes are now at new all-time highs. This happens as we begin a week that isn’t typically friendly to the stock market. In fact, this has been a losing week in 21 of the last 24 years. It will be interesting to see if this week breaks tradition or if the stock market again drops lower.
With mortgage bonds unable to break above overhead resistance, the safe play will continue to be locking. The technical picture is outweighing economic news reports. Based on the technical outlook at this time, the market appears ready to drop lower, pushing mortgage rates higher once again.