Current Trend Direction: Sideways at top of range

Risks favor: Neutral to Locking Bias

The FNMA 30-year 5.5% Mortgage Bond is currently trading 6bp lower at $102.09.

Mortgage Bond prices remain at nosebleed levels not seen in nearly a year. In fact, the last time Bonds convincingly traded above these levels was in March of 2004. But Traders are understandably cautious, as Bonds remain somewhat “overbought”, which can be seen on the Stochastic Chart on our Bond Page. In the absence of any economic reports on the docket today, Traders will seek direction from stocks, oil, and the currency markets.

Technically, Bond prices appear to be stalling from any further increase. Coupled with the aforementioned "overbought" state, this makes the Bond fairly vulnerable to a reversal lower. With no visible impetus to push Bonds higher in the short term, prices could easily drop to the closest strong support level at the 25-day Moving Average...about 40bp lower than current levels, presently at $101.72. Until some news arrives that could help Bonds bust a move, maintaining a locking bias continues to be our advice at this time.