Continued locking bias

Mortgage bonds continue to drift lower, driving the APR on mortgage interest rates slightly higher.  The S&P 500 set a new record high yesterday, and is once again blazing new record high territory.  The strength of the stock market is partially the cause for mortgage interest rates being pressured higher.  However, mortgage bonds have had a very long run higher and were overdue for a pull back.  In fact, the longer a market runs higher without any short term mild correction, the weaker the move truly is and the greater the fall when the market does correct.  Therefore, it’s healthy for bonds to to take a breather at this point.

The NFIB reported that optimism amongst small business owners jumped 0.7 points to 94.5, making this the highest level reached since last December.  However, it is still below the 96.1 average for 2015.  Within the report, the components were mixed – plans to hire fell 1 point, but plans to increase capital spending were up 3 points.  Those that expect a better economy rose 4 points, but those who said it’s a good time to expand fell 1 point.  Further, compensation plans were lower.  Overall, it was a good report.  However, the NFIB Chief Economist Bill Dunkelberg said that Small Businesses are in maintenance mode, uncertainty is high, and there will be no surge from the small business sector anytime soon.

Given the continued weakness in the bond market, we will maintain our locking bias.