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Tuesday, October 18, 2016

Mortgage Bond Market Analysis - No Data Surprises

It's Tuesday and we are on track for another positive day in the bond market.  On Friday, the FNMA benchmark bond closed down 29 basis points.  Yesterday, with no economic data released, the bond recovered a bit, closing up 15 basis points.  Today's data came in as expected, for the most part, and the bond continues its recovery as it is up 12 basis points.  The RSI has risen just above the oversold threshold and the bond tested the 1st support level of 103.30 which is really acting more like a resistance level because it is below the threshold at 103.25 but actually got to 103.33 before selling off a bit.

Economic Data:  The September MOM CPI came in as expected at .3% - a fairly strong reading.  The core reading came in a bit lower than expected at .1% vs. expectations of .2% - this is a good showing for inflation.  The core YOY came in at 2.2% vs. expectations of 2.3%.  The NAHB Housing Market Index came in as expected at 63 which is very strong since any reading over 50 shows growth.

The benchmark bond may have bottomed out for now.  It is currently up 18 basis points and 1 basis point above the 1st level of support, 5 basis points below the 1st level of resistance.  Not sure how much higher the bond will go since the data was as expected today.  Tomorrow we get housing starts, building permits and the Fed Beige Book.  Thursday brings us the Philadelphia Fed Manufacturing Index, existing home sales, leading economic indicators along with jobless claims.

As of this moment, the bond is up 14 basis points.  There is a lot of resistance as it tries to move higher with the 1st support level right above the current price and the first resistance level six points above that.  Then you have the moving averages beginning with the 100-day that's at about 103.48, then the 50-day at about 103.58 and finally, the 25-day at about 103.68 and then you have the 2nd resistance level at 103.72.  With all of this resistance, I continue my recommendation to lock on any up days.  We've had a couple in a row now so if you haven't locked, this would be a great time to lock.  If you do float, keep a close eye on the market.

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