As predicted in yesterday’s market update, mortgage bonds fell precipitously in yesterday’s trading. In fact, they dipped below their 100 day moving average for the first time since early January. Fortunately, the fall was halted shortly after breaking beneath this critical level and bonds experienced a bounce higher. Also important to note is that bonds are now outside of the long term upward channel that has driven mortgage interest rates lower since late in 2015. Hopefully this isn’t the beginning stages of a trend reversal where we move to an upward interest rate cycle. The risk of that is certainly increasing.
Today is a relatively quiet news day, so the technical picture will heavily influence the direction of both stocks and bonds. The typical relationship of stocks and bonds moving in opposite directions has been the exception, not the rule as we generally see. For example, both stocks and bonds are higher so far this morning. With stocks bouncing off support as well, there is now room for both stocks and bonds to move higher for a bit before hitting the next ceiling.
This is a wild time with high volatility for both stocks and bonds. In the meantime, there is limited benefit for floating. If you choose to float, do so carefully. Otherwise, take the safe play and lock in.