12 Aug Continued locking stance
Stocks closed slightly higher yesterday, and are near flat so far this morning. As we mentioned yesterday, the direction of the stock market will greatly influence the direction of mortgage interest rates. With the 50 and 25 day moving averages not too far above current stock levels, the market may be looking to push higher and challenge these levels. Although they may get pushed lower after hitting resistance, it seems likely that stocks will make a run in the next few trading sessions.
Mortgage bonds made an attempt to push above their 25 and 50 day moving averages. However, they were pushed lower when the stock market opened. We are now clearly back in the same sideways trading channel bonds have been trading in since early June. With today being a low economic news report day, there will be little catalyst to push bonds one direction or another. Therefore, the direction of mortgage bonds will likely be based on the technical outlook and the direction of the stock market. Both are still not painting a positive picture for the bond market.
With bonds facing stiff resistance, we are going to continue our locking bias. When trading in a sideways channel, there is minimal opportunity for improvement. Generally, when in a sideways trading channel, there is only a small difference in the cost to obtain a particular interest rate from one day to the next. The base interest rate of 4% on a fixed 30 year loan has remained fairly stable for months. It is only the cost to obtain this rate that has varied slightly