12 Sep Locking bias
Mortgage bonds finally broke out the tight channel that they have been trapped within for the past several weeks. Unfortunately, the break was in the wrong direction. Prices of mortgage bonds dropped from multi week highs down to multi-week lows in just a short four-day trading period. This has increased the APR of mortgage interest rates from multi-week lows up to multi-week highs. The increase in interest rates has primarily been driven by talk from members of the Federal Reserve about the need to push short term rates higher. Although the actual increase in the Fed Funds Rate could help improve mortgage interest rates, the chatter beforehand tends to scare bond investors and drive rates higher.
At 11:00 am MST we will get the results of a 10 Year Treasury Note auction. The results of which could dictate the near term direction of mortgage interest rates. With yields moving higher the past week, we could see stronger demand as a result. If that is the case, mortgage bonds may begin to stabilize. With strong levels of support just beneath current levels, we are hopeful the losses will beyond current levels will be limited. However, the risk of continued downward pressure in bond prices remains high.
With bonds still showing continued weakness, we will maintain our locking bias.