03 Nov Locking Bias
The stock market climbed to new record highs again this morning. The ongoing strength of the stock market was finally able to push mortgage bonds beneath the support that has held them up through this unprecedented stock market rally. Once a floor of support is broken, that then becomes a ceiling of resistance that will make a climb higher in the bond market more challenging. The 10 Year Treasury Note yield is also climbing higher, which is adding additional upward pressure to interest rates. The yield on the 10 YTN is now at 2.36%, which is significantly higher than the sub-2% level it was at briefly less than 3 weeks ago. The saving grace may be that the 10 year treasury yield is now approaching a significant ceiling of resistance which may prevent yields from moving much higher. Hopefully, this level holds.
ADP will release their estimate of job growth for the month of October this Wednesday. The market is expecting a number close to 230,000. However, the report with the greatest ability to influence the market comes this Friday, when the Bureau of Labor Statistics (BLS) reports their estimate. The market is anticipating this report to be near 240,000. News on the labor market will certainly help shape the near term direction of interest rates. Therefore, if the report is stronger than expected, we will likely see mortgage rates pressured higher. If for some reason the report is weaker than expected, that will help mortgage rates hold steady or even be pressured lower. Based on other economic indicators, we see the report as likely coming in at or above expectations. New unemployment claims have been at multiyear low averages which are suggesting the labor market is growing. Stand guard as we approach Friday’s release. The volatility this week will likely be high.
With mortgage rates being pressured higher this morning, we are going to continue our locking bias. The market is becoming increasingly volatile, with wide swings happening more frequently. The upward path the stock market has been on for the past three weeks is way too steep and not sustainable. It is just a matter of time before we see stocks pull back and at least stabilize. When that does occur, it will help relieve some of the pressure on interest rates. For now, however, the direction is certainly higher for mortgage rates.