13 Feb Locking bias
Stocks are shooting higher this morning, once again setting new all-time high records. Stocks are still celebrating President Trump’s announcement from last week where he plans to release a new corporate tax structure within the next few weeks. This is much sooner than the markets anticipated, and is expected to increase corporate profits by 5-10%. This is clearly a move that will benefit investors who have money in the stock market, so many bond holders are selling mortgage bonds to put their money into the higher returning stock market. This could continue to drive mortgage interest rates higher, as bond prices continue to fall.
Market trading for the week will likely be heavily influenced by news releases scheduled throughout the week, highlighted by inflation data as well as a slew of Federal Reserve speeches. Investors will be listening to the Fed for any hint as to the direction of mortgage interest rates as well as to when they expect to stop reinvesting proceeds of mortgage backed securities back into the market. The current amount of Fed purchases of MBS is in the ballpark of $8-9 billion each week. If they decide to discontinue this investment, mortgage rates will likely move higher by ¼% -3/8%. Therefore, mortgage rates may not remain this low for much longer.
With the stock market continuing to drive money out of the bond market, we will maintain our locking bias.