Yesterday was Valentine’s Day, the day of love and bonds saw anything but. As Cupid flew around, shooting arrows, bringing together loved ones, he shot mortgage backed securities with a poison arrow instead.
Mortgage bonds, the real driver of mortgage rates (not the 10-year note), had been holding their own as traders scrambled causing rallies and sell offs in both stocks and bonds. Nevertheless, as Valentine’s Day approached, actually the day before, bonds lost their “love”. Yesterday, right from the start, they began to bleed, getting only a band-aid later in the day.
Throughout the day, spurred by Retail Sales and Initial Jobless Claims beating expectations, bonds faced their demise. They bled through their 50-day Moving Average, a normally solid support layer, and drained all the way down to their 100-day Moving Average before getting that band-aid. However, as they started out this morning with kind of “shock treatment” to try to regain strength, they only had a temporary bounce and are bleeding again.
So, as mortgage bonds bleed to death slowly, you can expect mortgage rates to be moving higher, at least for the near future. With any luck, they will get some emergency surgery and regain their health.