Stocks have blasted higher so far this morning, once again reaching new all-time high levels. Global weakness has certainly made the US financial markets the shining star across the globe, attracting money from around the world into our bond and stock markets. This is partially the reason why stocks here in the US are at levels never seen before. Given that today is a relatively slow day for economic reports, both the stock and bond markets will be heavily influenced by the overall technical picture. Given the current strength in the stock market, it could be a rough day for mortgage bonds as well as the 10 Year Treasury Note.
Mortgage bonds are currently sitting right on their 25 day moving average. It seems the level of pressure they are currently under could easily cause bonds to make a break lower. If that happens, bonds will likely fall down to their 50 DMA, which sits about 23 basis points below. Since the 50 DMA has proven to be a strong layer of support, the damage may not be too heavy. This could give bonds some time to build up the strength needed to make another run higher. Much will depend upon the economic news as it is released throughout the week.
With bonds currently under significant pressure, the safe play will be to have a locking bias.