18 Oct Mortgage Bonds at Critical Point
Mortgage bonds are in dangerous territory in early morning trading, as they flirt will falling beneath the floor that has prevented mortgage rates from taking a step higher. Bases on the micro-pattern that has developed over the past 5 days, bond prices are pointing towards losing this battle. However, prices haven’t yet broken beneath their 100 day moving average during the entire 2019 year. Therefore, a move beneath this strong floor of support would be both unusual and will spell trouble for the near term direction of mortgage interest rates.
An update on China GDP was released this morning, showing the pace of growth in the struggling country slowed to a rate not seen since the early 1990’s. Considering this is a slower pace of growth than they experienced during the great world recession of 2008, this is concerning for global economic health. Of course, tariffs haven’t been helping and will likely cause further damage as time goes on.
There is little economic news scheduled to be released today, so markets will trade heavily based on the technical picture. At this point, the only good thing about the technical outlook is the hope that the 100 day moving average will hold. Given its strength, I suspect it will. However, watch the stock market closely. If stocks catch another run higher, bond prices could lose the battle.
Floating is extremely dangerous right now. Although the 100 DMA should hold, there is no guarantee. Float only if you are closely watching the markets and are ready to lock immediately.