Locking in here would be the safe play

The volatility that often follows the monthly Bureau of Labor Statistics (BLS) has subsided this morning after Friday’s announcement created additional uncertainty in the financial markets.  Although the BLS report showed a disappointing number of new jobs created, the bond market struggled following the announcement as the stock market seemed to suck up the influx of confidence that the Fed will not be raising rates at the September meeting.  This created a headwind for mortgage bonds, causing them to actually fall on news that would otherwise push them higher.  However, this morning is a new day, with investors now finding their appetite for mortgage bonds once more.  As a result, bonds are up nicely for the day, adding downward pressure to the APR of mortgage interest rates. 

Today is a relatively slow day for economic news reports.  Therefore, the markets will trade heavily based on technical factors.  With mortgage bonds once again above their 25 and 50 day moving averages, the technical picture for bonds is looking good at the moment.  However, we must consider that we have been trading within a tight sideways channel for several weeks.  Friday’s BLS report could continue to help build the strength needed for bonds to make a break out of the upper end of the channel.  However, until such move happens, we must assume that bonds will be pushed lower as they approach the top of the trading channel.

With bonds now at the top of a long standing sideways channel, the safe play will be to lock in at current levels.  Recent history shows that bonds tend to fall back towards the bottom of this channel each time they reach the peak.  Although anything can happen, that has been the trend for the past several weeks.