28 May Mortgage Bonds in a Free Fall
Stocks opened the short week with a vengeance, as the Dow pushed higher by close to 200 points. The Case Shiller Home Price Index was above expectations with the best year-over-year increase in over 7 years, and Consumer Confidence hit a 5 year high as well. But the real catalyst seems to be central banks around the world reassuring investors that the printing presses will continue to print cheap money. This has broken the support level of mortgage bonds, pushing interest rates to their highest level since QE3 was announced and higher than we have seen in more than a year. The Federal Reserve may be buying $85 billion of bonds a month, but right now it looks like they are the only one buying at all. mortgage bonds are in a free fall right now, and are not within reasonable reach of support. As the old saying goes, “Don’t try to catch a falling knife.” Therefore, we will advise a locking bias.