Locking bias

Locking bias

The stock market is shooting higher once again this morning, fueled by the prospect of reduced corporate tax rates.  President Trump announced yesterday that he sees the revised lower corporate tax rate plan coming into play within the next few weeks.  This is much sooner than many anticipated, and is therefore sparking a rally in the stock market.  The lower corporate tax rates are expected to boost corporate after tax profits by 5-10%.  As a result, money is flowing out of the bond market and into the stock market as investors see this as an opportunity for higher returns.  This plan will clearly hurt mortgage interest rates in the short and long term.

 

Mortgage bonds fell below their 25 and 50 day moving averages in early morning trading and have since climbed back up above the 50 DMA.  They now remain trapped in between the two moving averages as they look for which direction they should head.  The 10 Year Treasury Note yield is in a similar position, sitting just beneath its 25 and 50 DMA.  If the 10 Year Note yield climbs any higher, we will likely see mortgage interest rates advance as well.  It will likely depend upon how strong stocks perform as the day wears on.  If stocks fail to continue to advance higher, we could see mortgage bonds hold their 50 DMA.  That would be good news as we head into next week.

 

In the face of a strong stock market, we will maintain a locking bias.