Will bonds make a run higher?

Mortgage bonds are off to a nice start today, and have so far maintained their position above the 200 day moving average.  Also, the 10 year treasury note yield is down to 2.73%, which is 5 basis points lower than it was yesterday morning.  Further, the yield on the 10 year note is now below both the 50 and 100 day moving averages.  This is very encouraging and provides support to help keep mortgage rates from moving higher.

Mortgage application data was released this morning showing that applications were down 2.1% last week.  Following the recent volatility in the purchase market, this relatively stable number is encouraging.  However, when compared to this time last year, purchase applications are down 17%.  Much of this drop in the home buying market can be attributed to the increase in mortgage rates, with current rates nearly 1% higher than where they were early last year.  For every .5% increase inmortgage rates, at least 50,000 homebuyers across the country are said to pushed out of the market.

From a technical standpoint, mortgage bonds could be setting the stage for a bit of a comeback.  The stock market appears to be taking a bit of a breather in their seemingly unstoppable run higher, which will also provide support in the mortgagemarket.  As long as we maintain above the 200 DMA we will suggest a cautiously floating bias to see if bonds can make a run higher.