Locking bias

Locking bias

So far, today has been another lackluster day for mortgage bonds.  With bonds remaining trapped in a tight range, both the gains and the losses have been relatively small and non-eventful.  This will likely be the case until something forces bonds to make a decision as to which direction they will head.  This week could be catalyst for bonds to break out of their channel, with a scheduled GDP report on Thursday, a Federal Reserve interest rate decision on Wednesday and Personal Consumption Expenditures on Friday.  Each of these are key reports that have the ability to influence the near term direction of mortgage interest rates.  If they show continued weakness in the economy, rates could improve.  However, if they show more strength than anticipated, rates could move higher.  Either way, it will be an exciting week to watch how things play out in the bond markets.

 

Overall, the US stock market continues to shine, with last week hitting their highest level since mid-August.  This move higher has heavily been influenced by tech stocks as well as an increase in merger and acquisition activity.  Further, activity in foreign stock markets has also added confidence to markets here in the US.  However, many economists remain skeptical to the thought of continued moves higher in US equity markets.  The risk of a substantial drop seems high.  In general, extreme volatility in the stock market can signal overall weakness that can lead to a more dramatic correction.  At this point, it is too early to know for sure.

 

With bonds at the top of their range in a tight channel, there is little benefit to float.  Until bonds decide their direction, we will continue to have a locking bias.