Locking Bias

Locking Bias

Early reports out of Greece indicate that the deal they were hoping to put together has stalled.  As we discussed yesterday, the later retirement age and tax increases have created push back among many of the leaders and those who will be impacted by the changes.  This is a very fluid situation and has created a great deal of volatility in the financial markets around the world for many months and even years.  Just thinking back to the number of times we have had significant rate improvements or increases that were attributed to the financial crisis in Greece.  There have been many and the surrounding volatility is likely to continue.  If a deal is in fact agreed upon soon, we can expect the stock market to celebrate and the bond market to fall on the news.  That could help push mortgage rates another step higher.

The final reading on GDP for the 1st quarter of 2015 was reported this morning to be -0.2%.  Although a sharp improvement from the -0.7% early reading we received several weeks ago, it is still an extremely weak number and remains in negative territory.  Because it is the first quarter, it is typically the weakest report of the year due to seasonal adjustments.  However, on a year over year basis, GDP is still likely to be low.  This report will likely help anchor the annual rate of GDP in 2015 in the +2.0% range.  This is far from what was predicted by the Federal Reserve at the end of 2014, and not strong enough to justify a Fed Funds rate hike.  This is one of the key reasons the Fed has not yet made a move to raise rates.

Mortgage bonds continue to trade in a downward channel and could be due soon for another step lower.  Unless bonds can make a break above the channel, we will suggest a locking bias until bonds reach the bottom of the channel.