Risks favor: Cautiously Floating

Current Price of FNMA 5.5% Bond: $98.88, -3bp

With no economic reports scheduled for release, Bonds may take direction from Stocks, which are looking pretty good from a technical standpoint. Although Stocks are taking a bit of breather this morning, each of the major stock indices have just recently powered back above their 200-day Moving Average. Should Stocks continue to forge higher it may be at the expense of Bonds. And with lower trading volume because many Traders took this week off, any price moves may be exaggerated.

There is a four-week Treasury Bill auction at 11:00am ET and a $22 Billion Two-year Treasury note auction at 1:00pm ET. This added Bond supply could weigh on Bond prices.

The Case-Shiller Home Price Index for October showed a 6.1% year over year decline in home prices, which was more than the 5.7% decline expected. The Index, which measures home prices in 20 US metropolitan areas, showed a 4.9% decline in home prices in September. This report is starting to get more attention as the media enjoys reporting negative stories. Stocks didn’t like this report and Bonds modestly improved as a result.

Bond prices have fallen beneath their 50-day Moving Average. This is important as prices have not closed beneath this Moving Average for two consecutive days since July. At the moment, prices are attempting to hold onto support at the $98.81 level. Should the Bond fall beneath this floor, the next closest level of support lies at $98.64, which is another Rising Support Line. Hopefully, you have been following our locking advice and avoided the 120bp price loss seen in just the past four days, but on brand new transactions, we will cautiously float to see if support will hold.