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Friday, July 1, 2016

Mortgage Bond Market Analysis - Long Weekend edition

Happy Friday and Happy Independence Day.  It's been a week since the Brexit vote and while the markets have returned to some normalcy, all of the data we got this week was from before the Brexit vote so traders are trying figure out how much weight to put on the data since things might be different with a major change in the EU.

After a nice follow-through day on Monday where the benchmark bond closed up 39 basis points, it was down slightly (2 basis points) on Tuesday.  Wednesday saw the bond retreat 15 basis points while yesterday the benchmark bond was up 31 basis points.  The economic data has been mixed all week and even data that came in as expected was often lower than the previous month's reading.  Today the bond is currently up 15 basis points but has had a few wild swings with it getting up as much as 30 basis points and then falling to down 5 basis points after the ISM Manufacturing Index came in hotter than expected at 53.2 vs. estimates of 51.4.  This is a solid follow-through from yesterday's Chicago PMI number that was also much hotter than expected at 56.8 vs. expectations of 50.8 and a previous month's contractionary reading of 49.3.  Shortly after the plunge, the bond recovered and was up about 28 basis points again before settling to our current level.

The day's trend overall looks to be sideways and there is a strong resistance at 104 which was tested a bit yesterday and again today and hasn't shown the conviction to break through.  The RSI is above the overbought threshold and is also providing some headwind there as well.  Since last Friday's open, the bond is up 122 basis points which means there is some nice profit available for bond traders who were in last Thursday and sell out today.  Truth be told, many bond traders are in and out of trades multiple times per day doing large volume trades on minimal movement.  As for locking / floating, We are at our highest levels in over a year with great rates - don't be greedy.  I'd lock.  Next week is Jobs Week with lots of important data - it's all pre-Brexit so it won't get as much weight as normal but it's still important.  If you do float, watch the market closely so that you can act quickly - my app (buyerZapp) can help with that.  It's FREE and you can get it by clicking on the link in the upper right-hand corner of my blog.

The bond market is closed on Monday for one of my favorite holidays - Jed's birthday eve.  Actually, Independence day is truly one of my favorite holidays as I have a deep love and respect for our country, the founding fathers and the constitution.  I love our freedoms and don't take them for granted and am very thankful to those who have served and those who do serve in the military to protect us and the freedoms we have.  Have a happy and safe Independence Day.

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