No real incentive to float, locking bias

Mortgage bonds continue to be pushed lower, breaking beneath support of the 25 day moving average. Bonds are now trapped in an extremely tight range between the 100 and 25 day moving averages. Further, there are beginning signs of a downward channel being formed. Depending upon the results of the 10 Year Treasury Note auction that will be announced later today, bonds could make a break in one direction or the other. A weak demand will likely force bonds to break beneath the 100 day moving average, which will pressure mortgage interest rates higher.

The stock market has been in recovery mode the past couple of days, fueled this morning by an 8% increase in the Chinese stock index. Stocks are nearing a critical point that could lead to a more significant rally. However, markets may stall as we approach the September 17th Fed meeting. An increase in short term interest rates will be viewed by the stock market as a negative, while the bond market will likely respond positively. A delay in raising rates could be what the stock market needs in order to get back near the range it was a few weeks ago.

With mortgage bonds remaining under pressure, there is little incentive to float. Therefore, we will maintain our locking bias.