24 Mar Risky to float
Mortgage bonds are showing signs of fatigue, as they bounce above and below the 50-day moving average. Although they are fighting to stay within the short term upward trading channel, it seems unlikely that they will be able to hold on much longer. The trend in recent months has been to form small upward channels, break out and then falling back down. However, each time experiencing lower peaks and lower valleys. This is the sign of an upward trending interest rate environment, which we technically are still in. Unless bonds can run up another 80 basis points or so, we will again reaffirm the ongoing trend.
President Trump’s repeal of Obamacare seems to hold the direction of mortgage interest rates. Today, it was revealed that the Republicans are skeptical that they will have the votes needed to pass their proposed bill. Failure to pass will not be good news for the US stock market, as businesses will remain burdened by the current employer based healthcare system. That would lead to reduced profits, which will drive stock prices lower. If it does pass the House, it will still need to pass the Senate. We must watch the progress of events today to see how this plays out.
Markets will likely be jumpy today, as they wait to see which way the vote goes. Given the risk of breaking out of the bottom of the upward channel, we will maintain our locking bias. However, remember that bonds could improve based on the results of the vote. It just seems a bit risky for most to consider floating.