10 Nov Locking bias
The stock and bond markets continue to adjust to the idea of a Donald Trump presidency. For stock investors, they see an environment of lower taxes and less regulation. This opens the doors for companies to expand spending and increase innovation. Bond holders, on the other hand, hate the idea of an expansive economy where business growth is strong. Bond investors love bad economic news and slow economic growth. As a result, bonds are getting hammered right now as investors quickly sell their bond holdings to jump into the higher return stock market.
Mortgage interest rates have increased nearly 3/8% in just the past three trading days. This rate of upward movement has only happened a few times in my 20-year career in the mortgage industry. When it does happen, it is incredibly painful for those in the middle of a home purchase or refinance. Based on the looks of the charts, the losses will likely continue as mortgage rates drive even higher than they are now. With optimism running high, it seems like now is a great time for the Fed to step in and raise short term interest rates. That could help slow the growth in the US stock market and give bonds a reason to at least stabilize.
I’m sure it goes without saying, but we will maintain our locking bias. In reality, we’ve had a locking bias for several months now. Thankfully, it has helped protect our clients from experiencing the deep losses we have encountered.