Trade War Concerns Ease

Stocks have stated the day sharply higher, fueled by diminishing concerns over a trade war with China.  Treasury Secretary, Steven Mnuchin stated that “meaningful progress” was made over the weekend with China and that investors should view the talks as a victory for the American side.  As a result, U.S. investors celebrated the victory by driving stock prices higher.  Although the bond market is relatively flat for the day, this will act as a headwind as competing dollars flow into the risker assets of stocks vs the safe haven of the bond market.

Its another quiet news day today, so markets will again trade heavily based on the technical picture.  With the exception of the Fed Meeting Minutes for the May 2nd meeting, this will be a relatively slow week overall.  As a result, our updates this week will pay particular close attention to the technical outlook.

Mortgage bonds are now trading in a wide channel and have about 40 basis points they could move higher before hitting the next ceiling of resistance and about 25 basis points until the next floor of support.  Anytime the trading range in this wide, we could be subject to strong movements in either direction.  So we must be careful at current levels.  With the stock market continuing to move higher, this could turn momentum against the bond market.

There remains very little incentive to float.  As a result, we will maintain our locking bias.

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