09 Sep Locking Bias
Mortgage bonds went from being on an upward trend, to a sideways pattern, and yesterday quickly formed a downward channel. This is very negative for mortgage interest rates, which quickly moved up .125% higher. This technical move lower is not being fueled by strength in the stock market. With the markets currently near flat for the day, it is not creating much headwind for bond traders. The drop in bond prices will likely continue for a bit, with yields on both the 10 Year Treasury Note and mortgage interest rates moving higher in response.
The NFIB Small Business Optimism Index for the month of August was reported this morning to be at 96.1. This was only slightly higher than the 96.0 expected. However, it shows an increasing trend in the mindset of small business owners. As business owners become more confident in their businesses and the economy, they will add more employees to their payrolls. This continuation will pressure mortgage interest rates higher as more payrolls are added to our economy.
Mortgage bonds are currently right on the 50 day moving average. If this important floor breaks, which we feel is likely, we will likely see a quick drop down towards the 100 day moving average. Hopefully, this floor will hold. If not, we will likely see rates at the highs we quickly touched a couple times this summer. All hope is not lost, however, as rates could still come back to challenge the lows of the year in the next few weeks. September is typically not a great month for the stock market. A drop in stocks would help get rates back below the 4% line. We will maintain our locking bias as the story plays out.