Mortgage bonds are finally having a good day, as investors are showing their belief that bonds have found their bottom. This is a welcome sign, as it is impossible to know for sure when a steep losing streak will finally end. This streak took bonds below most all significant support levels. Therefore, the recovery process in the market will not come easy. Bonds are currently testing their 100 day moving average. A break above this level will be very bullish and could propel bonds higher quickly. Mortgage bonds are currently supported by a weakening stock market and an improving 10 Year Treasury Note. If this continues, mortgage rates could fall back to the 3.5% range they were in a few weeks ago.
Optimism among small business owners increased slightly from a reading of 97.9 up to 98. Although lower than expectation, it was the 3rd highest reading since 2007 and showed that we still have significant strength building in our economy. Of the 10 components surveyed, 3 improved, 3 remained stable and 4 declined. The strongest components were plans to increase inventories, current job openings and expected credit conditions. The strength of the US dollar skews the overall economic picture when just considering small businesses. Large companies who rely on exports will not be as optimistic given the rapid slowdown in foreign purchases in US goods due to the overwhelming strength of the US dollar. This makes it more expensive for US companies to sell their goods overseas.
With mortgage bonds finally showing signs of improvement, we will suggest a floating bias as we watch to the market to see if the gains continue. However, bonds are currently battling overhead resistance at the 100 day moving average. If bonds are pushed beneath this level, we will switch to a locking bias and lock in the gains made over the past two days.