It has been a wild trading day so far. Mortgage Bonds opened the day 12bp higher than yesterday's close, which suggests a lot of buying pressure at the beginning of trading. However, prices have since turned lower, giving up all the early gains and more, as Traders take some profits from recent rise in Bonds. The Bond is already well off the best levels of the day. Initial Jobless Claims were reported at 432,000, which was basically inline with expectations. The more closely watched four-week average of new state filings rose to 445,750, the highest since the recession of 2001. The report, while looking bad, is being somewhat discounted as a new federal program continues to skew the new claims in recent weeks. Oil is taking off today, now up close to $120 per barrel, after trading near $111 a barrel just a few days ago. This is adding some selling pressure to both Stocks and Bonds. The Philadelphia Fed Index was reported at -12.7, which was very close to expectations, and Leading Economic Indicators was reported at -0.7%, which was worse than expectations of -0.3%. These reports did little to move the markets. Even though Bonds are trading lower today, we have benefited from either an improvement re-price yesterday or better pricing this morning, thanks to yesterday's big rally. But, going forward we have to be very cautious. The recent rise in Bonds has pushed them into "overbought" territory, which makes them ripe for a reversal lower. After yesterday's powerful move higher, Mortgage Bonds separated themselves from the 50-day MA. But, this morning's wild reversal lower after the stronger open may lead to further price deterioration and another visit down to the 50-day MA, still 33bp below current levels. Since the pricing losses happened before rate sheets were delivered, we can carefully float for now, but keep a close eye on the pricing windows on the Bond Page as the market is very, very volatile. Of course I will be watching closely and will alert you if you need to take action. |
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