28 Apr Continued volitility: Alert to lock!
Yesterday was a pivotal day for mortgage bonds, as they spent the day fighting over the 25 day moving
average. Just at the end of the trading day, they lost the fight and ticked just one basis point below the 25 DMA. Right at the opening of
the market this morning the follow through selling continued. Signaling additional upward pressure to interest rates, the 10 Year Treasury Note
yield also broke above its 25 DMA. The combined effect of these moves is very negative to the near term direction of mortgage rates. However,
there was some relief in the bond market after April’s Consumer Confidence level was reported at 95.2. This was much lower than expectations
of 103.0 and also lower than last month’s 101.4. It’s difficult to imagine what created this lower level of confidence, considering that the
stock market is at an all-time high and we are moving into the typically stronger economic summer months.
Today is the first day of the Fed’s 2 day meeting, with results of the meeting expected to be released tomorrow early afternoon. This is a wild card
report that can have a significant impact on the direction of all markets, including mortgage bonds which dictate consumer mortgage interest rates.
If the Fed feels that inflation is starting to move higher, this will spark fear in the markets and cause mortgage rates to jump. There is certainly
an increased concern given the spike higher in oil prices and continued strength in the US job market. With fewer people looking for work, the
likelihood is that income levels will rise to pursue people to jump from one company to another. Wage based inflation is often the first sign
of consumer prices moving higher. It’s almost as if you can feel this movement already taking place.
Given the continued uphill battle in the bond market, we will maintain our locking bias. Tomorrow’s Fed results could go either way. It is
likely that we will see a continued increase in volatility in all markets as we move into the significant economic reports of the week.