02 Feb Locking bias
The bond market breathed a sigh of relief following yesterday’s announcement from the Federal Reserve that interest rates were left unchanged and the Fed will continue to reinvest proceeds from mortgage backed securities as existing loans that they own are paid off. Since this equates to tens of billions of dollars being reinvested, this certainly helps stabilize mortgage interest rates. The statement regarding the economy was very similar to the December statement, with the exception of a stronger expectation for inflation to reach the 2% target. Rather than say it was slowly progressing towards this level, the statement was modified to state that it “will reach that level.” Although this was not a bond-friendly comment, mortgage rates still slightly improved on the overall news.
Tomorrow morning, we will receive the estimate of new jobs created in the month of January from the Bureau of Labor Statistics (BLS). This important report is considered to be the primary indicator for the overall health of the labor market and has a tremendous influence over the near-term direction of mortgage interest rates. Given the surprisingly strong number reported by ADP, it seems likely that the BLS report will also be strong. This is not good news for the mortgage market, as strong job growth tends to drive wages higher which in turn increases consumer inflation.
With bonds remaining below their 50-day moving average, we are still at great risk of rates moving higher. Further, tomorrow’s job report may also have a negative impact on interest rates. Therefore, we will maintain our locking bias.