Market Update

Mortgage Bonds are trading slightly lower but have improved from their worst levels of the morning, which was an exact touch on support at the 50-day Moving Average.The big news of the morning was China announcing they may diversify their holdings away from the U.S. Dollar, saying that they will favor stronger currencies over weaker ones...and that the U.S. Dollar is losing its status as the world currency. For China to reduce its massive U.S. Dollar denominated holdings, they must sell off some of their enormous U.S. Dollar based positions, like our Mortgage Bonds...and going forward, they also may not purchase as many of our Mortgage Bonds. The massive demand for our Bonds by the Chinese is one reason rates have stayed relatively low in recent years--so this scenario is not good for Bonds and home loan rates in the long term, and a story I'll continue to keep a close eye on.For now, Bond prices are above important support at the 50-day Moving Average, so I will recommend Cautiously Floating but will watch to see if the Bond breaks below this floor of support.