18 Jul Locking bias
Mortgage bonds are hugging the bottom of support and continue to show signs of weakness. There is a clearly defined downward channel driving the price of mortgage bonds lower, which is pressuring interest rates higher. The good news is that if bonds do break through this current support level, there is a second support level not too far below. This could help at least slow the pace of losses in the bond market and provide some the opportunity to lock in their interest rates.
The US stock market continues to climb higher, with the S&P 500 now sitting at all time high levels. However, there appears to be a slowing in the rate of growth, with a rounding top formation in early stages of development. If the rounding top formation continues, stocks could lose some of their gains. That would help support mortgage bonds as stocks begin to slow. With mortgage bonds approaching a strong layer of support, the slowing stock market seems to come at a perfect time.
Oil prices also continue to fall, which tends to help support the bond market. We see further declines likely in the oil markets as the summer winds to a close.
Mortgage bonds are now at a critical level. If they break below the multiple layers of support, the APR of mortgage interest rates will move higher. It’s too early to say for sure what will happen. Therefore, the safe play will be to maintain a locking bias.