Mortgage bonds continue to trade just beneath a critical ceiling of resistance. Since this level has not been penetrated since last November, it continues to remain unlikely that they will be successful this time around. It seems that it will take a major economic, global or political event to boost bond prices higher. Given the recent trend of strong economic data, bonds aren’t likely to receive any love because of slower economic growth. Global and political issues seem to be proving the greatest opportunity for bond investors.
The US stock market has become a bit jittery in recent weeks, as failed attempts to push President Trumps agenda has sucked some of the prior optimism out of the mindset of investors. Although Trump could celebrate a major victory by appointing his choice as a Federal Court Judge, he has faced stronger than anticipated objection to both health care reform as well as corporate tax reform. If he ultimately fails to pass these two objectives, stocks will suffer as a result. On the other hand, that would help support lower mortgage interest rates, as money would certainly flow out of stocks and into the bond market.
Unless bonds can break above the ceiling, we will maintain our locking bias.