Sideways trading... be Cautious

Today we are seeing our market move sideways, with the bulls and bears fighting for authority over the final direction our market is to follow. It's clear we are still taking our cue from the 10 year treasury yield which is currently rising. This is putting pressure on mortgage backed securities and is probably a large reason why we are seeing resistance today.

Of course it could also be due to the fact that we are very close to breaking through the 104.00 price point on the 4.5% note. This price point seems to be serving as resistance. I find it highly unlikely that our market will break through this price point today; but we have been testing this resistance line for the last couple of days. Should the treasury yield retreat, we could see our market break through.

This needs to happen for rates to continue to go lower. In the meantime I anticipate we will see some horizontal days of trading. All things considered sideways trading is not a bad thing. It allows you to take advantage of being able to float into shorter lock period which will result in better pricing.

To reiterate this point, have a look at this one year graph below. We're sitting on top of the world. Not a bad plateau to be stuck on.