08 May Locking bias
With very little planned news to drive the markets this week, mortgage bonds are holding just below unchanged levels. Trapped beneath their 25-day moving average and a duel layer floor of support provided by their 50 and 100 DMA, bonds will likely remain range bound today assuming no surprise announcements that could cause markets to move. Later this week, we will get an updated report on consumer inflation via the CPI report. This potential market mover could be a catalyst to help bonds decide one way or the other which direction they will move. It will be interesting to see if this report supports last week’s PCE report that showed lower levels of inflation. If so, that would be good news for mortgage bonds which could help rates settle even lower.
Markets awoke this morning to news of a new President of France. Pro-EU centrist candidate, Emmanuel Macron has officially achieved victory over the conservative candidate that would have liked to see France detach from the European Union. As we saw with the Brexit vote out of Great Britain, the world would consider an exit as further destabilizing the global economy. Therefore, investors are celebrating President Macron’s win. Had the vote turned the other way, we likely would have seen mortgage bonds gain as stocks lost value. For now, markets are stable as the threat of a France EU departure wain.
Given the tight range in which bonds are currently trapped, there is little incentive to float. As a result, we lean towards a locking bias for loans needing to close in the near term.