Maintaining a locking bias

Mortgage bonds are currently right below the 100 day moving average, while stocks are slightly lower as well.  Housing starts were down 9.8% at 999,000 units.  This was a bit higher than expectations, and although it seems to be a bad number, it is still a strong number of new starts.  Industrial Production and Capacity Utilization were both reported to be a higher than expectations this morning.  Capacity Utilization came in at 79.2%, which is the highest reporting since 2008.  As factory production increases, it tends to drive prices higher.  That could lead to further inflation, which we feel will be more of a concern in the near future than most experts anticipate.  Should inflation exceed expectations, mortgage rates will certainly climb higher in response.

Mortgage bonds are currently in a tight range, being held down by the 100 DMA.  They tried to climb above the 100 DMA this morning, but were quickly pushed down below.  Since we have fought this level for two days now, it seems the fight will likely fade at some point today.  Should this happen, bonds could easily fall to the next floor below.  Therefore, the safe play will be to maintain a locking bias.

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