Locking bias

After six trading days above its 200-day moving average, mortgage bonds are back beneath this critical level. As can be expected, bonds then fell all the way to the next support level, which happened to be their 25-day moving average. This comes on the heels of a busy news week which includes inflation data, as well as the interest rate decision from the Federal Reserve on Wednesday. Wednesday’s Fed meeting is certain to result in a quarter percent interest rate hike, so market volatility could increase before the announcement.

Hopes for lower rates in the near future are slowly diminishing, as markets adjust to the more favorable than anticipated outcome of the hearing involving ex-FBI Chief James Comey last Thursday.  It seems that impeachment chatter has slowed from many political pundits. The stock market certainly celebrated the news by hitting new record high levels. However, stocks have since lost their steam and are so far pointed lower in premarket trading this morning.

At some point, the Fed hikes should help slow the growth of US stocks. However, so far, the increasing rate cycle hasn’t done much to discourage stock investors. It will be interesting to see how they react to Wednesday’s rate hike.

With bonds continuing to show weakness, locking remains the safe play.