Locking bias

Both the stock and bond markets are near flat for the day, as both look for direction before deciding which way to go.  The DOW reached new all-time highs yesterday, fueled by continued hope of a stronger economy under a Trump presidency.  Mortgage bonds have held up surprisingly well under the continued strength of a seemingly unstoppable stock market.  Stocks are seriously overdue for a pull-back.  It could be that next week’s Fed rate hike will provide the stimulus needed for investors to take some chips of the table as the market adapts to a higher interest rate environment.  In the meantime, however, bonds will likely sufferer as stocks continue to suck wind out of the bond market. 

The Core Logic Home Price Index showed that hope price appreciation moved 1.1% in the month of October and 6.7% on a year over year basis.  Home price gains continue to accelerate, with this month’s report exceeding the prior reporting of a 6.3% year over year rate of growth.  Since this report measures home gains in the month of October, it will be interesting to see if November’s mortgage interest rate increase impacts the values going forward.  When rates increase at a rapid rate, we typically see home buyers rush in to take advantage of rates before they move even higher and then slow down.  I anticipate that trend will be the case after this move higher. 

Mortgage bonds are trading in a very wide range.  Given that the next floor of support is 46 basis points beneath current levels, there remains great risk in floating.  Therefore, a locking bias is once again the safe play.