16 Feb Locking bias
Mortgage bonds are higher so far this morning. With no significant reports driving the markets today, the move higher was a result of bonds bouncing off a floor of support. Hopefully, bonds will trade in a sideways channel, with the 50-day moving average likely capping improvements to rates and yesterday’s floor holding rates from climbing higher. With bonds now just beneath the 50 DMA, rates will not likely improve in the near term.
From a technical standpoint, the charts don’t show a favorable pattern for mortgage bonds. A look back on the charts from when bonds began to fall last November shows that bonds remain in a strong downward longer term channel. Since markets never move in a straight line, a longer-term trend is highlighted by lower peaks reached during temporary improvements to bond pricing. This longer term downward channel will likely maintain the trend of mortgage interest rates climbing higher over time. Unless there is a significant event to break bonds out of this channel, we can expect for rates to slowly grind higher as the year moves on.
Although we have seen improvement so far this morning, we are now capped by the 50 DMA. Thus, we will maintain our locking bias.