14 Dec High Volatility in Mortgage Pricing
Yesterday’s Federal Reserve announcement was just as planned, with the Fed raising short term interest rates by ¼%. Although this move was a foregone conclusion, mortgage interest rates immediately improved on the news. It was as if some bond investors had thought there was a chance the Fed would shock the market and not increase interest rates. Because the Fed move is to help curb inflation and prevent an over-heated economy, rate increases are helping soften mortgage interest rates. Although the improvement in mortgage pricing was minimal and temporary, it shows the market’s excitement to see the Fed acting to prevent inflation from getting out of hand.
Retail Sales came in much stronger than the market expected, showing continued strength in the US economy. Although I believe this could have been heavily influenced by victims of the recent hurricanes replacing damaged goods as well as Christmas purchases, it was enough to cause investors to celebrate. If Retail Sales continue to grow over the coming months, it will cause upward pressure on mortgage interest rates.
Bond prices are right in the middle of a trading channel, which could cause great volatility in today’s trading pattern. This increases the risk of whipsaw trading. Since bonds are beneath their 200-day moving average, wild trading patterns aren’t generally a good thing. With that in mind, a locking bias continues to be the safe play.