10 Mar Very cautiously floating
The aftermath of last week’s stronger than expected jobs data leaves mortgage rates .125% to .25% higher and stocks setting new all-time record highs. mortgage bonds are now trading in a tight range, preparing to make a break one way or the other. Fortunately, there is stronger support beneath where mortgage bonds are currently sitting than there is overhead resistance. The 200 day moving average, which is typically a very strong support level, is just a few basis points below current levels. The power of this support makes an improvement in the bond market more likely than a drop in the market.
So far this morning, after establishing new record highs last week, the stock market is heading lower. The weakness in stocks today may provide mortgage bonds the steam to push higher to create more breathing room from the 200 DMA. We are also closely watching the 10 year treasury yield. It is currently trading right at the 50 day moving average. If yields move above current levels there will be tremendous pressure to push mortgage bonds lower. This could be very negative. Considering that just last week the 10 year yield was trading below the 200, 50, and 25 DMA, and now only has the 50 DMA above it, the force of last week’s move was very powerful.
As long as we stay above the 200 DMA, we will suggest a floating bias. We must be careful, however, as things can change quickly in this volatile market.