17 Feb Locking bias
Mortgage bonds continue to drift lower as the stock market gains its footing in recent trading days. We need to carefully watch the S&P 500. If it breaks above the 1935 level, we could see a significant rally happen in the stock market. This would be a negative sign for the bond market, which is continually competing for investment dollars. As stocks move higher, bond prices fall which drives mortgage interest rates higher. However, if the stock market stalls out at the 1935 level, it could settle back and move down once again. We will have to wait and see how this plays out.
The Federal Reserve Meeting Minutes for January were released today. It showed acknowledgement of continued weakness in consumer spending as well as in the manufacturing sector. Further, it emphasized global economic risks and the potential for continued adverse impact here in the US. This essentially takes a March rate hike off the table and confirms that the Fed will be in a holding pattern with interest rates for now. The stock market celebrated this news, as a continued increase in interest rates is not friendly to stocks. As we witnessed after the December rate hike, a move higher in rates could create significant turmoil in the markets.
With bonds prices still under pressure, we will maintain our locking bias.