Just when we hoped mortgage bonds would stabilize, a bearish engulfing pattern developed in the bond charts just before the close of trading yesterday afternoon. Sure enough, we woke up to mortgage bonds once again on the chopping block. Since Tuesday, bond have dropped a whopping 110 basis points, and still have more to give. At this point, the only support beneath current pricing is the 200 day moving average. The 200 DMA is only 11 basis points away, and will either provide support and give bonds a bounce higher, or it will give way to further losses. Should bonds break beneath this critical support, the fall could be dramatic.
Both import and export prices were reported this morning. Overall, there was very little surprise. In some cases prices were a bit higher than anticipated. However, most were either inline or below expectations.
The 10 Year Treasury Note yield made a decisive move above its 100 day moving average, and is now shooting up to the 200 DMA. The yield has moved in almost a straight line higher for the past 9 trading sessions. In fact, in this time frame the yield has moved from 2.34% and is now at 2.6%. With only 5 basis points to hit resistance at the 2.65% level, it is likely that this will be tested at some point today. Again, we are hopeful this support will hold. However, if it fails, the 10 year yield could take another significant jump higher.
We hope our locking stance through this transition has helped people make wise decisions when it comes to timing of locking in an interest rate. Mortgage rates are now back to the highs last seen in early April of this year. It is truly amazing how quickly interest rates can move higher. In the industry, it is termed, “Trying to catch a falling knife.” We will obviously continue our locking stance, with hope that the 200 DMA will hold.