You have heard the tales of the Bottomless Pit, and that is what Mortgage Backed Securities have found.  They continue to freefall with no support sighted in the near future.

Ok, since May 8th, we have seen Mortgage Bonds begin their fall, trading within a Downward Channel.  On May 14th, we advised that the breakthrough of the 200-day Moving Average would mean the Bond MArket would get ugly.  Today, we have broken through another major support layer, one that leaves a huge gap before Bonds see support again.

Ugly cannot sum up the current status of the Bond Market.  With growing inflationary fears, fueled today by a lower than expected Initial Jobless Claims report, Bonds cannot find support, not even when the Stock Market is pushing lower, and that is never a good sign for things to come.

So, what does that mean.  Well, folks, INTEREST RATES ARE GOING HIGHER!!!  You see, Bond prices dropping, means yields go higher and yields are what creates the pricing for mortgages.  So if Bond prices erode, the drive yields, and ,ultimately, interest rates higher.

If you remember, I blogged about "Watch for Falling...".  While I was being optimistic about it being rates, I also mentioned that it could end up being prices.  Unfortunately, it ended up being the latter, but that post was about how Technical indicators can forecast the markets and they did just that.  The triangle pattern I mentioned that would have to break did, just the opposite way we wanted and that started the death spiral of Bonds that we are still in.

Here is a chart, courtesy of Mortgage Market Guide that was taken a few moments ago.  It shows the gap down today (already 68bp), and more importantly, shows the depth at which they potentially will fall before the hit "bottom", and that support may not hold up either, so the real bottom could be even lower.

So, where will bonds stop their bleeding? Who knows for sure, but it is not likely to happen until at least the middle of next week.  Additionally, the recent economic reports are showing increased inflationary pressures.  That draws the attention of the Feds, so while they may not raise rates later this month, you can bet they will be "wording"things differently and that could suck Bonds lower.

Stay tuned to my daily posts on the markets here, and even my new blog on mortgages here for continued coverage of what affects you as a mortgage user.