Mortgage bonds remain trapped in a strong downward trading channel, as mortgage interest rates approach multi-year highs. There is currently a strong floor of support that could help stop the fall. However, it’s too early to say if that will be the case. We first need to see bonds at least move in a sideways trading pattern, as that would move them out of the downward trading channel in which they are currently in. However, we need to assume that the channel will continue and that mortgage interest rates have a good chance of continuing to climb higher as well.
There is very little economic news driving the markets this morning, so trades will be heavily influenced by the technical picture. The biggest news of the day so far comes from Washington, with President Trump set to initiate $200 billion worth of tariffs on China. However, it is only at a rate of 10% compared to the originally scheduled 25%. We will have to see if China retaliates. If they do, we could see an increase in volatility in the stock market.
Given the continued weakness in the bond market, we will maintain our locking bias.