Watch closely if you choose to float

Mortgage bonds are continuing their cat and mouse game again today, with bonds being the victor so far. High volatility continues, with the stage set for added volatility in the coming days. Currently, bonds are finding support with their 25 day moving average and facing resistance with a duel ceiling of the 100 and 200 day moving averages. They are likely to fight within this range until news hits that causes bonds to make a break in one direction or the other. That news could come on Wednesday when we will receive an update on the Consumer Price Index (CPI). A weak read could improve bonds, while a strong reading could cause rates to move higher.

Although we are receiving strong housing and job reports, the economic recovery overall has been very weak. GDP has failed to reach respectable levels and wage growth has been far from impressive. There are many possible causes for such anemic levels of growth. However, over regulation is certainly a possible cause to consider. With more regulations soon to hit the mortgage industry, it will be interesting to see if this causes housing to experience a slowdown.

With bonds moving in the right direction today, so far there is no need for an immediate locking bias. However, the trading range is tightening and we are moving towards the top. Although there is slight room for pricing improvements, it may not justify the risk of floating. If you choose to float, do so only if you are able to watch the market closely.