16 Dec Locking bias
Mortgage bonds have been hammered since the announcement of a Federal Reserve interest rate hike last Wednesday. So far this morning, bonds opened stronger but have since lost steam and are now negative. With stocks looking to recover all the losses that resulted from the rate hike, it seems that bonds will continue to move lower until the stock market runs out of steam. At this point, it’s impossible to predict at what point that will happen. Markets just keep moving higher as they continue to celebrate the election of incoming President Elect Trump. Although it will end eventually, mortgage rates will continue to suffer in the meantime.
Today is a relatively quiet news day, so markets will trade heavily based on the fundamentals. With bonds being in a steep downward trading channel, that generally means another tough day for the mortgage market. There was a point three years back when mortgage interest rates were higher than they are today. Since that was near multi-year highs at the time, it was a long time before that when we had rates this high or higher. Based on the trends, it seems likely that we could see rates move up to match those levels. Therefore, we could lose another ¼% or more in the near term. With the best executed 30-year rate now at 4.125%, hold on to your shorts. Things may get worse before they get better.
Given the clear direction of mortgage interest rates, we will maintain our locking bias.