29 Mar Watch the market closely
After facing weakness in late day trading yesterday, mortgage bonds came out of the gates strong this morning. In fact, they just broke above overhead resistance of the 25 and 50 day moving averages. It will be a strong indicator for favorable interest rates in the near term if bonds are able to maintain their position above these critical levels. However, it’s too early to say at this point if bonds have the strength to hold on. In many cases, bonds break higher just to be met with a strong push back which causes prices to fall back lower. It is often a result of pre-programed trades that are triggered when prices make a run higher, allowing investors to cash in on some of their earnings. We need to closely watch what happens from here.
Today will be a quiet day for economic reports. However, there will be several Fed members speaking throughout the day, including Fed President Janet Yellen. There are now roughly 25% of the Fed members believing that we are in need of another immediate rate hike. While most people acknowledge that central banks around the world (like the Fed here in the US) have helped steer the world economy clear of another recession, the state of extended low rates is wearing on many industries. This is part of the reason why there is a growing force among pundits and lobbyist to pressure the Fed into making a move higher. In April, the Fed will be forced to consider another hike. Although it is still not likely to happen so soon, we can expect talk of further rate hikes to become more aggressive.
If bonds are able to maintain above their 25 and 50 day moving averages, we can float. However, if they lose steam and begin to fall, lock immediately to secure the gains of the day.