22 Feb Technicals in Play Today
In perfect technical fashion, and exactly as planned, mortgage bonds bounced higher after dropping to the bottom of its trading channel. This is a show of strength for mortgage bonds and gives hope that when bonds do break out of this trading challenge it will be to the benefit of mortgage interest rates.
This is a slow week for scheduled economic reports, so markets will trade heavily based on the technical outlook. Given that the trading range for the bond market is as tight as it is, there isn’t a lot of room for mortgage interest rate pricing to improve. Therefore, unless something happens to drive bond prices higher, pricing will remain relatively stable.
One key unknown will be the market’s reaction when Robert Mueller releases his findings surrounding the Trump campaign and Russia. If there is strong proof that ties President Trump to crimes, we can expect democrats to move towards impeachment. That would not be good for the stock market and would likely benefit mortgage bonds. However, if there is no “smoking gun” to tie President Trump to crimes, then stocks could continue to gain steam. One key thing to consider is that stocks are due for a drop. Could this all come together at the same time? We’ll see. In the meantime, I maintain my belief that bonds will climb higher in the long term, which is good news for those who hold mortgage loans at higher rates.
I will maintain a locking bias.