18 Apr Consider floating
News out of Europe that British Prime Minister Theresa May announced that she is seeking an early election rocked the markets in early morning trading. This unexpected statement at Downing Street caused investors to sell stock holdings in exchange for the safety provided within the bond market. This move drove mortgage bond prices higher, pushing interest rates down to lows not seen since November 17th of last year. Even more significantly, bond prices are now above the critical ceiling of resistance that has been challenged many times in recent months but failed to overcome. This bullish move is a good sign for the near-term direction of mortgage interest rates. If prices can maintain above this level, we can expect to see further improvement in the days to come.
The overall rally mortgage bonds have experienced recently has primarily been driven by global events, not by weakness in the US economy. If the unease in the Middle East and North Korea continues to escalate, we could see the 10 Year Treasury Note yield fall below the 2% level. Although this is certainly not what we would hope for, it would have a dramatic improvement to mortgage interest rates. We will be watching closely and will keep you posted.
As I mentioned in prior reports, now that we are above the ceiling we can consider floating to see if rates will improve further. However, keep in mind that there is great volatility in the markets and we can reverse course quickly.