20 Aug Locking Bias
After recent talk of a stock market correction, stocks quickly rebounded and are now within striking distance or reach new all-time highs. As expected, mortgage interest rates have been pressured higher since the day stocks began their strong move higher. So far, mortgage bonds have remained within their upward channel, but are now barely hanging on. This could just be a healthy pullback for bonds as they muster the strength to make another run towards the top of the channel. However, it will be heavily dependent upon the news release and the strength of the stock market in the days to come.
Today is the release of the Fed Minutes from their July 30th meeting, which could set the tone of mortgage bonds in the near term. Historically, Fed Minute release days have not been friendly to the bond market. We will likely see increased volatility as we approach the release time of 12:00 MST. If the Fed’s tone is a little stronger with respect to concerns of inflation, and hiking short term interest rates sooner than the mid 2015 most analyst expect, we could see a break below support and upward pressure on mortgage interest rates. If the tone is soft, it could propel the bond market higher to get us back to the top of the trading channel.
Purchase mortgage applications continue to fall, with last week decreasing another 0.4%. This brings the year-over-year decrease to 11%. The market could sure use some help with lower mortgage rates as we move into the traditionally slower purchase months of winter.
We have had a locking bias and will continue to do so until we see the bond market stabilize. If we can hold the trading channel, we have a good chance of moving to the top in the near term. However, the risk of breaking beneath support is high today, considering the release of the Fed Meeting Minutes. Watch closely, as the next couple days are important trading days for the bond market and the direction of interest rates moving forward.