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Thursday, September 18, 2014

Mortgage Bond Market Analysis

Will today be a reversal of fortunes?  Both Tuesday and Wednesday saw the Benchmark bond get off to a promising start with early morning price increases in the 20+ basis point range only to see investors sell off throughout the day to end down.  This morning on some stronger-than-expected initial and continuing jobless claims, the benchmark bond is starting the day down - it is currently down 12 basis points.  Here is the chart:

The silver lining in this rain cloud of a two-week down-trend is that the bias has yet to change - in other words, the RSI is still showing as oversold.  If analysts think that the fundamentals of the market have changed and that rates will necessarily move higher and stay there, then the bias would change and we wouldn't be oversold.  This means there is a possibility of a bounce - not a guarantee, but a possibility.  The put the recent movement in perspective, the bond price as declined 168 basis points since its high on August 29th, 35 of that was due to the monthly roll-over so there has been a net decline of 133 basis points which translates into an increase in rate of about just under .375% - that's a pretty big jump in just under 3 weeks.  Rates are low, very low, from a historical perspective so I wouldn't feel bad if I locked now, but I would consider locking now because there's no real sign that we will get the benefit of any sustained bond-buying.

Leading Economic Indicators is the only economic data on tap for tomorrow and that isn't typically a big influence on bonds though it is expected to come in a half point lower than last month (.4 vs. .9).  The market is currently only down 7 basis points which is a 5 point improvement from when I started writing this - maybe today is the day for a reversal of fortunes.  Please feel free to comment and like my posts as well as share them with your friends and subscribe.  Make today great.

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