Risk of floating increases

I’m not liking what I see in the bond market charts this morning.  To begin with, mortgage bonds continue to hug the support line that has prevented the APR of mortgage rates from taking a step higher.  This level of support has been tested each of the past seven trading days.  This weighs on the market like a plate held up by a wet paper towel – eventually it will come crashing through.  If we don’t see bonds improve in the very short term, this analogy could come to fruition with mortgage bonds.  That would likely put bonds back to the range they were in prior to the “Brexit” vote in Great Britain. 

The US stock market is trading higher so far this morning.  However, it once again is showing signs of a “rounding top,” indicating that stocks could have reached their short term peak.  Further, stocks have been in an over-bought territory for a while and are certainly due for a reversal.  However, if stocks are again able to continue their move higher and set new record highs, that could create the weakness needed in the mortgage bond market to drive interest rates higher.  We will have to wait and see how things play out.  With little news releases scheduled for today, the technical will drive the markets.  However, today is certainly a critical day for both the stock and bond markets. 

The risk of floating continues to increase.  Therefore, we will maintain our locking bias.