Locking Bias

Mortgage bonds opened up flat this morning, ahead of tomorrow’s Fed Meeting Minutes release and 10 Year Treasury auction.  Looking back in recent history, the bond markets typically react negatively to Fed Meeting Minutes.   Therefore, there is a high possibility that mortgage bonds will have a bad day tomorrow.

The National Federation of Independent Business (NFIB) reported for March that optimism among small business owners increased 2 points, moving from 91.4 up to 93.4.  This was 1 point higher than expectations that were set at 92.4.  The index measures 10 different areas, 6 of which were higher, 2 were unchanged and 2 were lower.  Of the two that were lower, future hiring plans was one of them.  This is very negative, as job growth is one of the most significant factors in our economic recovery.

The stock markets suffered another rough day yesterday, but are treading water so far this morning.  Should the slide continue,mortgage bonds will likely benefit.  Potential gains in the bond market will likely be caped ahead of tomorrow’s Fed Meeting Minutes release and 10 Year Treasury Auction.  Until we see how the market reacts to these reports, we will suggest a locking bias.  Given that we have had a 110 basis point move higher in the bond market, a 30-50 basis point correction is a high probability.  This would be a healthy move, and not necessarily an indication of weakness.  Tomorrow’s reports may be just perfectly timed to give the markets a reason to take a break before attempting to move higher.