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Friday, October 17, 2014

Mortgage Bond Market Analysis - the All Quiet on the Western Front edition

The Benchmark bond is taking a breather after two days of high volatility.  The economic data has been a mixed bag over the last two days with no definitive information about where the economy is headed from here.  This morning, the data was mostly positive if not super strong with housing starts (beat expectations and previous month) and building permits (came in slightly below expectations but above last month) both coming in above the 1000 level and the Michigan Consumer Confidence reading was also up a couple of points vs. expectations and 1.8 points vs. last month.

RESISTANCE:  good for weight training, not good for the benchmark bond.  The first level of resistance at 103.8 has proven to be very strong with the benchmark closing below it on Wednesday after being well above it (121 basis points higher, in fact) and then closed below it again yesterday after another strong start that pushed the price above the 2nd level of resistance for the 2nd day in a row.  The more times it tries to break it and can't, the stronger that resistance level gets.  The bond got to within 5 basis points of the 1st level of resistance this morning and has since sold of a bit to where it is currently down 15 basis points.  Here's the chart:

I expect that we will see a relative quiet day compared to the last two where we got lots of improvement and worsening alerts in addition to trend reversal notifications.  There isn't a ton of data on tap for next week but I think bond traders will be looking for any direction they can latch on to including getting some influence from the current geopolitical climate and the global economy.  A quick look at the bond market as it stands right now shows a bit more selling with the benchmark bond now down 19 basis points.

Riding time:  It's time for a ride and then I'm off to California for a quick trip tomorrow for my son's basketball tournament.  What are you doing for exercise and / or fun this weekend?  Enjoy and be safe and please feel free to comment, share and subscribe.

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