Watch closely and be on guard

Mortgage bonds had a rough day yesterday, dropping down to levels not seen since mid-March.  The trading was highly emotional and fear based ahead
of the Federal Reserve’s policy announcement.  Of course, there was no increase to short term interest rates.  Further, the tone of the meeting
was clearly very dovish, mainly focused on the areas of the US economy that are currently heading the wrong direction.  Much of the drop in economic
activity can be attributed to a normal winter slowdown.  However, there are still fundamental weaknesses in the economy that will continue to
create headwind for growth.  We feel that at this point, the Fed made it clear that there will not be an increase to rates at the June meeting. 
We feel that worse case will be an increase in October, and that is solely dependent upon continued economic improvement. 

March Personal Income and Spending was reported this morning.Income was unchanged, which was lower than estimates of +0.2%, and less than last month’s
+0.4%.Consumer Spending was +0.4%, which was also less than estimates of +0.5%, but higher than last month’s +0.1%.

Initial Jobless Claims for the week ending 4-25 were reported at 262,000.This was better than estimates of 288,000 and a decrease of 34,000 from last week’s
slightly revised 296,000.

Mortgage bonds are currently near the bottom of a significant Channel. We have high hopes that the current support will hold. However, there is always
risk, especially when the market has strong downward momentum. With rates pushed 1/8% higher in this move, you can carefully float to see if bonds
have at least found stability. However, watch closely and be on guard. If bonds break beneath support, lock immediately.A break beneath this level
will be very dangerous to both short term and long term interest rates.