Mortgage bonds are treading water this morning, on a quiet news day with little information to direct interest rates one way or the other. Therefore, technical indicators become more relevant. The stock market is underwater, which would typically help boost bond prices higher, pushing interest rates lower. However, so far today, that hasn’t happened.
Since the Fed meeting last Wednesday, mortgage bonds have traded in a very tight range. It feels as if investors are looking for one more reason to sell off and push interest rates higher. We are still in an upward trending interest rate environment, but the increase will not be in a straight line. As mortgage rates trend higher, there will be some days and even weeks that are stronger than others. However, overtime we will be able to look back and see the upward progression.
With mortgage bonds apparently holding at the current support, there is not an immediate need to lock in right now. However, things can reverse quickly. If current support fails, we suggest locking, as strong support is about 60 basis points below current levels. Also, there is significant overhead resistance that will limit any potential gains. Therefore, there is little benefit in floating. All things considered, the safe play will be to lock.