The stock market rallied again yesterday pulling capital out of the bond market and driving mortgage rates higher. Mortgage backed bonds have now lost 175 basis points since January 22nd.
In his testimony to Congress this morning Fed Chairman Ben Bernanke indicated that significant downside risks remain in our economy including the housing & labor markets. His damper comments are weighing on stocks which should help the bond market to stabilize.
The technical trading picture for bonds is bleak but we think the market may have overreacted. We’re changing our stance to neutral in the hopes that the market will reverse for the better in the next couple days.