Bonds Break a Significant Ceiling

Mortgage bonds are showing strength, and are now above the significant ceiling of resistance. Although this move could prove to be just temporary, it is a positive sign for the near-term direction of mortgage interest rates. Since early last November, bonds have not been able to sustain a move above their 200-day moving average for very long. Since history tends to repeat itself, we will likely see bonds break back below this level at some point in the near term. However, if they can hold above this critical level, we could see a significant improvement to mortgage interest rates as there is plenty of room for bond prices to improve. Let’s hope for the best!

The showdown over the US debt ceiling is looming, as our leaders only have until October to agree upon a new allowable debt level before the government once again faces a shut down. If the Treasury runs out of money, the US credit rating will again be threatened. This would effectively raise borrowing costs for our government as people would no longer consider the US government as safe an investment as it has always proven to be.  That would also drive interest rates higher on mortgage bonds, as higher rates would need to be offered to attract sufficient capital to compete with the coming higher yields offered on 10 Year Treasury Notes.

With mortgage bonds currently improving, we suggest waiting to lock for those who can closely watch the markets. If you can’t maintain a watchful eye on mortgage bonds, now is a great time to lock.