15 Nov Locking here = smart move
Janet Yellen’s Confirmation Hearing to take over the top job at the Federal Reserve went without any major surprises yesterday, as the market interpreted her comments as QE friendly. With inflation virtually non-existent, it is likely that we will remain at current QE levels for the near term. This is welcome news to the housing and mortgage markets, as we all know the spike in interest rates after investors believed the Fed would begin to “taper” last September.
The Empire Manufacturing numbers were released this morning, showing disappointingly low levels. This is in conflict with last week’s wholesale manufacturing figures that showed inventories were at much higher levels than anticipated. This helped bring mortgage bonds back to near flat after a weak opening this morning.
We are now at the top of a trading channel. History tells us that locking while at the top is a smart move. However, we feel there is a good chance that bonds will eventually break above this channel and improve a bit. With the significant amount of resistance above current levels, the potential benefit may not be worth the risk in the near term. We are also closely watching the 10 year Treasury Bond, as it is currently sitting on its 50 day moving average. A break lower would be a positive sign for the bond market.