Locking bias

Locking bias

Mortgage bonds did receive a nice boost following the interest rate and policy announcement from the Federal Reserve. As expected, the Fed decided to hold interest rates steady.  They stated concerns over inflation as the driver behind the decision. If they were to decide based on employment and economic growth alone, they would have hiked rates months ago. The greater fear behind delaying the decision to hike is the underlying concern that by the time they do pull the trigger, the economy will have overheated and will require dramatic action to slow the pace. This is especially true with respect to the job market, which has experienced tremendous growth the past few years.

 

Although bonds stopped at the top of their channel in late day trading yesterday, they were able to open higher this morning. This pushed bonds above their 25 and 50 day moving averages, essentially creating a breakout. Since true breakouts are hard to predict and often have false starts, it’s difficult to say if bonds have the capacity to hold on to current levels. If we are able to close above these trends, that will be a positive sign for the near term direction of mortgage interest rates.

 

Since bonds are again nearing the top of another channel, the risk of floating is increasing. However, there is no immediate need at the moment to lock. If you choose to float, do so carefully.