Mortgage bonds are trying to stabilize this morning after taking a beating in late day trading on Friday. So far, they remain above their 100-day moving average. However, the ceiling of resistance which is not too far above current levels, has proven to be exceptionally strong. With last week’s bombing in Syria not spurring the strength to push bond prices above this critical level, it seems it will take a more dramatic event to help further improve interest rates.
With little economic reports scheduled for release today, markets will trade heavily based on technical factors. The one key possible impact will come later today when the Treasury Department is scheduled to auction off 3-Year Notes. If demand is weak, that could trickle down to a sell-off of mortgage backed securities. Therefore, stand guard in the early afternoon to see how trades are impacted. After the close of market, bonds will experience a coupon roll-over which will impact the technical picture. If this is enough to push bonds below their 100 DMA, we will likely see continued follow through in tomorrow’s trading.
With mortgage bonds remaining above their 100-day moving average, it seems that the current rate environment is somewhat of a gift. Therefore, we will maintain our locking bias.