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Thursday, October 8, 2015

Mortgage Bond Market Analysis - "Weird" Addition.

What in the heck is going on in the world?  You know it's weird when the Chicago Cubs are in the playoffs.  It's even weirder when they also win a game.  Add to this the fact that the New York Mets are also in the playoffs and you have one very rare year.  The chemistry or karma has got to be at an all-time unexplainable weirdness level but I don't think it will have any impact on the mortgage bond market unless a key trader is a big fan of either team and then maybe if his or her team wins, he or she gets all giddy like a little school girl and makes some weird trades.  Doubt that will happen but this is a unique year for baseball.

As for the mortgage bond market, I recommended floating with caution (that's how I recommend floating) yesterday in the morning when the bond was down as low as 21 basis points.  It ended the day a bit better, only down 9 basis points.  After being up as much as 9 basis points this morning, some stronger-than-expected jobless claims data put the breaks on the buying and the FNMA benchmark bond is now up 1 basis point and the 10-year treasury is at 2.07 - an important level.  If the treasury breaks through this level then bond traders could sell off mortgage bonds pushing prices lower and rates higher.  I don't expect much volatility until the FOMC minutes are released and digested.  In fact, I'd be surprised if much happened after that since it was a 9-1 vote to keep rates the same.  If there is some hidden gem in the minutes that lead traders to believe there may be a different result in the FOMC meeting at the end of the month, then that may cause some consternation and some selling.

There is a lot of resistance above the current level for the benchmark bond as the RSI is overbought and the 1st level of resistance is 11 basis points above the current price.  There is more room for a drop with the 1st level of support 23 basis points below the current price and the 200 day moving average at about 104.18 - 7 basis points below the support level.  I don't think there is a big possibility for a large upward movement in price (which would lower rates) today - barring any geo-political occurrence and while it's not great, I think there is a greater likelihood of selling based on the technicals so my recommendation would be to lock.  Please feel free to contact me if I can help in any way - 702-812-1214 or 801-853-8720.  Make it a great day and go Mets (their first playoff game is tomorrow night).

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