Mortgage Bond Market Analysis - A decoupling between oil and bonds?

Over the last two weeks we have seen the relationship between oil and stocks weaken.  Today we are seeing a decoupling between oil and bonds.  Oil is recovering after a down day yesterday and yet the FNMA benchmark bond is also up 11 basis points after closing down 10 basis points yesterday (a 64 basis point loss over the 5 day slide that began last Tuesday - this is equivalent to an increase in rate of about .125% plus a bit in fees).  Today's decoupling makes sense since March Durable Goods Orders came in much weaker than expected at .8% vs. estimates of 1.8%.  Ex-transportation it was -.2% vs. estimates of .5%.  These are BIG misses and are fueling the rally (if you can call up 11 basis points a rally).  The Case-Schiller Home Price Indicies came in at 5.4 - exactly as expected - which shows solid appreciation but it was below the 5.7 of last month; this is really no big deal since real estate, like all investments and economic data, has an ebb and flow.  The Richmond Fed Manufacturing Index came in at 14 beating the estimates of 12 but well below last month's reading of 22.  Consumer confidence came in at 94.2 - a good reading but below expectations of 96 and the previous reading of 96.2.

This afternoon there is a 5-year Treasury auction.  Considering that our yields, while low, are better than offerings of about every other country around the world (at least for those considered safe-haven investments for their bonds), I would expect the auction to be well received.  Tomorrow we get Pending Home Sales and that at 2:00 PM EDT we get the Fed Interest Rate Decision.  I think we will see them leave the Fed Funds rate right where it is and that is also the market's expectations as well.  With oil near recent highs and the economic data not exactly on fire, I would float into the decision.  If oil sells off in any significant way over the next several days, I think that rates will benefit in spite of what's happening this morning.  The RSI (Relative Strength Index) is also below the the oversold threshold so we could see some benefit from some technical buying if traders get confident enough to buy mortgage bonds in any significant way based on what the Fed says tomorrow and what oil does.

The benchmark bond has sold off three basis points since I began writing this post and is now up just 8 basis points.  A look at the chart leads me to believe that we will likely be in a sideways pattern today unless the auction this afternoon gives traders and impetus to trade with conviction.  My recommendation is to float with caution but, like always, pay attention to my app (buyerZapp - link is at top right corner of my blog) for alerts and news so that you can try to lock before a reprice for the worse should the market move against you.  As always, make it a great day.