06 Jun Mortgage Bonds in Strong Downward Trading Channel
As expected, mortgage bonds hit the ceiling provided by their 50 day moving average and bounced lower. They opened up with support provided by the 25 day moving average but has already lost that battle. Without any moving averages beneath current levels, mortgage bonds are in a wide trading range and have a long ways to go before finding any meaningful support. This is dangerous territory that could lead to rates taking another step higher. We are seeing a similar battle with the 10 Year Treasury Note, with its yield also above all meaningful moving averages. This is not good news for the near term direction of mortgage interest rates.
Mortgage bonds are in a strong downward trend (interest rates trending higher). The lower rates that we saw from last week were mainly driven out of political concerns and worries over Italy being forced out of the EU. Since neither of these are much of a concern at the current moment, we could see rates head back to the highs we saw prior to the concerns helping interest rates improve. Unless bonds are able to break out of the downward trading channel, we should plan on rates continuing higher.
There is little incentive to float. We will maintain our locking bias.