Mortgage bonds fell in early trading today

After hitting multi-month highs, mortgage bonds fell in early trading this morning.  The last time mortgage bonds hit these levels they fell more than 200 basis points lower in the weeks to follow.  Will history repeat itself, or will bonds muster the strength to make another run higher?  History does tend to repeat, so we need to be careful at these levels.  Further, stocks are pointing higher today, creating further headwind for the bond market.  In addition, the 10 year treasury note yield has just breached overhead resistance.  This provides further argument of higher rates ahead.

Janet Yellen has her first testimony as Fed Chair today.  She has already released her written testimony, so there shouldn’t be much surprise in her prepared speech.  In her written testimony, she stated that the Fed is on board for a continued taper plan.  They feel the markets will improve over the short term, and that the economy appears to be on track for better times ahead.  Since the bond market reacts negatively to improving economic conditions, this further supports the thought that rates will be increasing in the not too distant future.

With bonds appearing weak at the moment, we will continue our locking bias.  We are closely watching the next level of support.  Should this level break, we may see rates take a jump higher.