Mortgage Bonds have worst day of the year

Mortgage bonds had one of their worst days of the year yesterday….  The loss added to the move lower since hitting an all-time high on July 24^th.  mortgage bonds drive interest rate pricing, but run in opposite directions.  Rates are clearly off of the lows we were seeing just a few weeks ago, with the average no cost pricing moving higher from 3/8ths to ½ %.  The driving force that is pushing stocks higher amidst all the continued negative economic reports appears to be the win-win situation for equities.  If reports are better, the economy is gaining traction and if reports are too bad, the Fed will roll out QE3 and artificially support pricing.  However, the run up in stocks has put the S&P 500 within a few points of a level of resistance that has denied a move higher for the last 4 years.  Ironically, this correlates with mortgage bond’s 100 DMA, which is also a price range that was established in May and June.  While there are no guarantees that any of these levels will hold this time, there will need to be a fairly strong catalyst to push stocks higher and mortgage bonds lower.  With a little more perspective than just a few weeks, interest rates are still at incredible lows.  We will maintain a locking bias on short term transactions.