Locking bias as we see how things play out

Both stocks and bonds are both up so far today.  The stock market is again at all-time highs, and the S&P 500 is ending the year with a record of not having 3 consecutive down days in 2014.  This has never happened in its history.  The strength of the stock market has been tremendous in 2014, with the S&P 500 now looking to break the 2100 level.  In spite of the strength of the stock market, both mortgage bonds and the 10 Year Treasury Note are moving higher in price, which adds downward pressure to interest rates.  The typical cycle of stocks and bonds moving in opposition to each other has not been as common lately, with stocks and bonds both performing well.

This will be a short week for the markets, with the bond market closing early on Wednesday and all day on Thursday in celebration of the New Year.  Although today is a slow day for economic reports, the calendar heats up tomorrow with the Case Shiller report and then on Wednesday we will have mortgage purchase application data, Initial Jobless Claims and Pending Home Sales.  Although some of these have the ability to move markets, it may be a mild week with technical factors heavily influencing the direction of interest rates.

Mortgage bonds have performed well the past three trading days, but are now starting to lose steam.  If bonds are able to stay above their 25 day moving average, they could make a run higher the next few days.  However, the strength of stocks could start to be a drag on the bond market.  We are going to maintain our locking bias as we see how this plays out.  If the 10 Year Treasury Note yield can maintain beneath 2.22%, mortgage bonds could develop the strength they need.  We will have to wait and see.