28 Feb Bonds Improving
Mortgage bonds are holding strong this morning, as they seem to be moving sideways out of the steep downward trading channel. If bonds are able to hold this position, we could see the upward trend in mortgage interest rates take a temporary reprieve. This could help rates actually improve in the near-term before making the continued expected run higher.
Yesterday’s speech by the new Federal Reserve Chairman, Jerome Powell, caused mortgage rates to hit new multi-year highs mid-day yesterday. He basically stated that economic conditions have improved since the beginning of the year. Since he is new on the scene, investors were looking for any sign that rates will be moving higher more quickly than anticipated. Hopefully he learns how to speak without causing such panic in the market. Janet Yellen did a great job at this, as I feel she did as a Fed President overall.
This morning’s GDP report came in right at expectations of a 2.5% annualized rate for the 4th quarter of 2017. Given that GDP is one of the most important reports that can influence mortgage interest rates, this was good news for the mortgage market to see the number as expected. Tomorrow’s Personal Consumption Expenditures (PCE) report will be a critical factor in deciding the near term direction of mortgage rates. If it shows a tame number, bonds could respond nicely. That would help in making a decisive break out of the downward trading channel.
Although there is no immediate need to rush to lock, there remains risk in floating into tomorrow’s PCE report. For most, the safe play will be to maintain a locking bias.