Safe play is to lock

Mortgage bonds remain pressed up against their 200-day moving average, which also happens to coincide currently with the ceiling that bonds have not been able to break above since last November when rates were climbing higher.  This makes for an exciting battle as we head into the Jobs reports from ADP tomorrow and then Friday’s BLS release.  If the numbers are weak, we could see bonds muster the strength to make a break higher.  Since that would be a significant breakout, it could also signal a trend reversal where we move from an increasing overall rate environment to one where rates are likely to continue to fall.  Since that doesn’t seem likely, we can expect for history to repeat itself and see rates get worse from here.

It was recently reported that credit scores have hit a record high as individuals’ credit reports that were damaged during the recession continue to heal.  As the unemployment rate continues to fall, most who lost their jobs are back to stable employment, which is helping people stay on track with their monthly obligations.  Further, those who experienced foreclosures and bankruptcies are seeing the adverse records fall from their credit reports.  This is great news for the housing market, which is heavily influenced by peoples’ abilities to qualify for home mortgages.  This will continue to strengthen the demand for housing as time passes.

With mortgage bonds pressed up against the stiffest resistance levels we have experienced in many months, there remains great risk in floating.  Therefore, the safe play is to lock.