Safe play is to lock

The panic in the oil market seems to have subsided, with oil recovering their losses that followed the failed meeting agenda out of Doha to limit oil production.  The recovery in oil prices is being celebrated in the stock market, with the S&P 500 now within a whisker of highs not seen since summer of 2015.  Stocks recovered from the market correction they experienced this January with a near straight line up.  This upward channel is still in place today, with no sign of stopping at this time.  However, as stocks reach these near all-time high levels, they will certainly face resistance.  If oil prices continue to climb higher, stocks could be set to reach unchartered highs. 

Mortgage bonds remain trapped within a sideways trading channel.  Overall, the performance in the bond market has been exceptional in light of the booming stock market.  Typically, the overwhelming strength in the US stock market would drain funds out of the bond market, pushing interest rates higher.  However, US government bonds are still considered to be the safest investment in the world economy and are paying a higher rate of return than many country’s bonds around the globe.  Compared to a negative rate of return in Japan, a 1.76% rate becomes attractive.  This drives money from investors around the globe into the US bond market, helping to hold mortgage interest rates down. 

With bonds trading in the middle of a wide range, they could be subject to wide swings.  This elevates the risk of floating.  Therefore, a locking bias is the safe play.