Locking bias

Locking bias

There is nervousness in the bond ahead of tomorrow’s European Central Bank meeting.  The markets are expecting an announcement of a European equivalent to our Quantitative Easing.  In fact, it is estimated that the stimulus package will be worth $500 billion+ Euros.  The concern is that if the announcement falls short of the market’s expectations then we will likely see a selloff in the bond market which could spill over into the US market.  If the announcement meets or exceeds expectations we will likely see a surge in the European bond market which could spill over into the US bond market.  Therefore, this is a pivotal point in the bond market, with the short term direction of mortgage interest rates certainly impacted one way or the other.

The euphoria of investing in China’s stock market appears to be over for many investors.  The decline in growth China has experienced is just a part of an overall global weakening.  At this point, the US market appears to be the bright spot in an overall global economy.  The strength in our stock and bond markets, combined with a strengthening US dollar continues to help boost the US economy amid slowing growth in other major markets.  Further fueled by lower oil prices, 2015 is on track to provide decent, but overall lower returns in the stock market, combined with continued low interest rates.  This is also a healthy combination for our housing market, which has had a difficult time fully recovering from the recent recession.

Given the risk of tomorrow’s ECB meeting, the prudent stance is to maintain a locking bias.  Since there is no clear direction until the announcement is made, at this point interest rates could move in either direction.  If you choose to float, and the announcement is not favorable, the damage will already have occurred before you can secure an interest rate.  With rates as low as they now are, any loan needing to close in the near term should consider taking advantage of the opportunity currently available.