10 Mar Locking bias
The European Central Bank (ECB) made another bold move by adding an additional $20 Billion per month to their Quantitative Easing (QE) program as well as cutting their benchmark interest rate by 5 basis points down to 0.0%. Further, they cut their deposit rate by 10 basis points down to -0.4%. In essence, they are now charging people for the privilege of holding their money. This move essentially forces more people out of their bond market, which naturally will move a stronger flow of money into stock markets around the world. This is clearly a positive for the US stock market, which is sure to gain additional foreign investment as a result.
So far, March has not been friendly for mortgage interest rates. Tuesday of this week began strong, which was followed by a sharp drop yesterday in the price of mortgage bonds. (Remember, lower bond prices equate to higher mortgage interest rates.) With the downward pressure on bond prices continuing today, it has formed what is referred to as a “Head and shoulders” pattern. If bond prices do not break out of this pattern today, we could see a more significant follow through in the next few trading days. That would pressure mortgage interest rates even higher. There is close to another 50 basis points bonds could fall before finding significant support. That means at least another 1/8% higher to mortgage rates could be on the near horizon.
With bond prices continuing their tumble, we will maintain our locking bias.