08 Sep Locking bias
Mortgage bonds and stocks are again trading in opposition this morning, with stocks winning the battle. Both markets are holding true to the recent trends of wide swings and high volatility. This will be a relatively quiet week of economic reports, so the technical picture will help drive the markets. The 200 day moving average continues to hold back both mortgage bonds and the 10 Year Treasury Note. Each of these investments challenged their 200 DMA on Friday and were quickly pushed away. Until bonds decide which direction to move, they remain stuck in a long term sideways channel. Although this has created some relative stability for mortgage interest rates, bonds will soon be forced to make a decision as the trading channel narrows.
It seems that investors are waiting to see what move the Fed makes before placing significant bets in the bond markets. A Fed rate hike would most likely trigger a bond rally that could help improve mortgage rates. If the Fed fails to hike rates when they meet on September 17th, we can expect to see the bond market take matters in their own hands by pushing yields higher in the long term market. This would cause mortgage interest rates to move higher. For the sake of mortgage interest rates, we are hoping for the Fed to hike short term interest rates next week. We can expect volatility to remain high leading into the results of the Fed meeting. This could be one of the most significant Fed meetings we have had in a while.
With bonds remaining trapped in a sideways channel, there is very little incentive to float an interest rate. Therefore, we will maintain our locking bias.