28 Oct Locking bias
After making a failed attempt to break out of the channel that has capped mortgage interest rates for nearly five weeks, mortgage bonds are suffering losses this morning. This is likely a play to protect against volatility that could result from today’s Fed interest rate decision announcement that will be released at 12:00 pm MST. Although very few are anticipating a Fed rate hike, many investors are taking their chips off the table until they know for sure what the Fed’s plan is. If the Fed’s tone on the US economy remains weak, it is likely that we will see bonds rally higher. However, if the Fed holds to their prior statement where they anticipate raising rates before the end of the year, many investors will be unwilling to jump back into the bond market. We will have to see how today plays out.
If today’s news isn’t enough to provide the bond market with enough motivation to help bonds break out of their channel, tomorrow we will receive an update on GDP and on Friday we will receive an update on Personal Consumption Expenditure (PCE). These are two of the primary drivers of mortgage interest rates. In reality, they are the most influential reports and are more meaningful than the strength of the job market to the direction of interest rates. Since GDP is the ultimate measure of the US economy, it trumps all other economic reports. Further, since consumer inflation is the arch enemy of the bond market, mortgage rates will certainly move in line with PCE.
With bonds still trapped in the tight range, the safe play remains to lock. If you choose to float, watch the markets closely. Be prepared to lock as each of the three reports mentioned above are released.