Mortgage bonds closed beneath their 25-day moving average yesterday, which was not the outcome we were hoping for. So far today, bond prices have once again bounced above and beneath this critical level, creating a lot of uncertainty as to which direction they will ultimately decide to take. If prices can close above this ceiling, it would help add hope for a bond rally in the days to come. However, if they once again close beneath this level, the ceiling will gain strength and bond prices could then head lower to test the floor of support. Until bonds can choose a definitive direction, we will just remain in suspense.
The Federal Reserve begins their two-day meeting today, with the interest rate and policy announcement set for tomorrow at 12:00 PM MST. The Fed will not be raising interest rates. However, investors will be listening intently for statements that could indicate how the Fed is feeling about the current economic path and whether Fed members see a recession in the months to come. Many economists believe we will avoid falling into a recession. However, history is the greatest predictor of the future. To me, it seems irrational to say the US will skip past the typical economic cycle. Therefore, anticipate a recession around the corner.
Unless bond prices can make a decisive break above their 25 DMA, we will maintain a locking bias.