Mortgage bonds continue to hover the bottom of a wide trading range held by a floor provided by their 50 and 100 day moving averages. Although these are generally considered strong floors, there seems to be an overwhelming negativity within the bond market that could lead to a break below these critical levels. If such a break does happen, bonds seem destined for a larger fall to the next floor of support. Much of this will depend upon how the results of today’s 10 Year Treasury Note auction turn out. If demand at the auction is weak, we could easily see prices fall even further, which would pressure mortgage interest rates higher.
Today’s weakness in the bond market comes as a bit of surprise as news over FBI Director James Comey’s firing yesterday by President Trump continues to swarm the headlines. The 6’8” Comey had recently requested an increase to the budget allocated to investigate the Trump Administration’s ties with Russia prior to the election. Although President Trump adamantly denies any correlation to the firing as this investigation, many in the media are questioning the true motive. Such a potentially impactful accusation would generally cause money to flow into the bond market, however, we are seeing the opposite for the time being.
Given the significant risks of a break beneath support, the safe play remains to lock.