06 Feb Locking bias
We are again testing the top of the trading channel this morning. Bonds experienced a gap up opening that put pricing just above their 50-day moving average. However, since this has been a formidable level that has held since early October of 2016, it remains to be seen if they can stay above this critical level. With very little economic news scheduled for release today, it will largely depend upon the technical of the markets. So far, stock prices are lower, which is helping to fuel the improvements in mortgage bond pricing. However, we must keep in mind that the recent trend has been for stocks to improve in late day trading. If this happens once more today, we could see bonds move back down beneath their 50 DMA.
The US stock market continues to appear to be on shaky ground. As we dig beneath the surface of an eight-year bull run, we find an investor base clinging to an uncertain optimism the could easily be disrupted. Since passing the important 20,000 mark, the DOW Jones Industrial Average has been vacillating right near that level. Overall, the stock market fears uncertainty. Per a recent study by Bloomberg, the number of news stories that contain the word “uncertainty” has reached a record high. Given the amount of change that has already been initiated by the Trump Administration, this isn’t a surprise. If this level of uncertainty continues, it will eventually take its toll on the stock market. This would help improve mortgage interest rates as money would flow out of riskier assets and into the safe haven of the bond market.
Although there is no need to immediately rush in and lock a rate, the risk of floating remains very high. Until bonds have proven their ability to sustain above the 50 DMA, we will maintain our locking bias.