Risks favor: Locking bias – Bond pressed against strong resistance at 200-day Moving Average

Current Price of FNMA 6.0% Bond: $100.16, Unchanged

Bonds are fighting a key barrier of overhead resistance at their 200-day Moving Average. Prices closed exactly at this ceiling yesterday and have been pushed modestly lower so far today. Stocks are lower as well, typically a friendly sign for Bonds. But the 200-day MA has put a lid on any further advance, and we are concerned that this firm barrier will turn the tide and send prices lower.

US Consumer Confidence weakened sharply in August to its worst level in a year. The closely watched sentiment indicator fell to 105.0 from a high of 111.9 in July. The decline was the sharpest since the aftermath of Hurricane Katrina. The drop has been attributed to the relentless bad news from the credit crunch in financial markets.

At 2pm ET today the Fed will release the Minutes from the August 7th meeting. It will be interesting to get the Fed’s views on the credit crunch, since it was just beginning to unfold at the time they met. The Fed Fund Futures are currently showing a 72% probability of a .25% cut at the September 18th meeting, with some predicting a chance of a .50% rate cut.