Locking Bias

The stock market came out strong following positive corporate earnings reports and news that Berkshire Hathaway will be buying Duracell from Proctor & Gamble.  Further, it was announced this morning that Americans’ views of the US economy climbed to their highest levels since early 2008.  When you think back to what happened shortly after that time period, it’s difficult to say whether this is a good thing or not.  It feels like we are either on the verge of another build up in economic growth, or that we will slip back into a recession.  The stock market appears to believe the former, while the bond market seems to lean towards the latter.  Remember that time period just before the markets crashed when we seemed blissfully unaware of what was before us?  With a strong eye on the future and the possibilities, it is also important for us to remember the past.

Jobless Unemployment Claims for last week were reported to be 12,000 higher than the prior week, coming in at 290,000.  This is still below the important 300,000 threshold, but slightly higher than the 288,000 expected.  This pushes the four week average slightly higher, but overall is still an impressive report that would indicate monthly job growth north of 200,000.

Mortgage bonds have had a difficult time the past few weeks, with stronger days typically just gaining back losses from the prior days.  The parabolic move higher the stock market has experienced the past few weeks is starting to round out at the top.  An eventual break in the momentum of stocks will be a welcome sign for the bond market.  As the stock market has gained more than 10% in the past month, this has pushed bond prices lower and raised interest rates higher.

Although a bit higher this morning, mortgage bonds remain beneath strong ceilings of resistance that could prevent rates from improving.  We will maintain our locking bias until we see bonds build the strength to make a break higher.


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