17 Feb Locking bias
Mortgage bonds experienced a gap upon opening this morning, pushing prices above their 25 and 50 day moving averages. The 10 Year Treasury Note chart paints a similar picture, with the yield falling below its 25 and 50 DMA. This powerful move is helping to stabilize mortgage interest rates, which is great news for those in the market to purchase a home. Global stock markets experienced a wave of weakness in overnight trading, which is causing many investors to place their money in the bond market. If this continues throughout the day and bonds can close above their 25 and 50 DMA, interest rates will be well positioned as they begin a new week next Tuesday.
It’s an interesting time for both the bond and stock markets. For example, chaos within the White House has so far been widely ignored by stock investors. Further, the growing threat of inflation seems to be lacking the attention it deserves by bond investors. In fact, Pimpco, one of the world’s largest bond investors, has warned of a pending inflation spike. However, current bond pricing shows this warning has largely been ignored. With recent inflation reports showing a growing rate of consumer inflation, it seems that Pimpco’s warning should be taken more seriously.
Since markets tend to fill in gap-up openings, we may see bond prices weaken as the day wears on. Therefore, we will maintain our locking bias.