Alert to lock

Mortgage bonds are struggling today and remain trapped in a 51 basis point spread between overhead resistance and support provided by the 200 day moving average.   Traders appear hesitant to make any bets on mortgage bonds ahead of the release of the Meeting Minutes from the Fed’s last OMC Meeting.  If the results of the minutes have a dovish tone, mortgage bonds could rally on the news.  However, many traders can clearly see that even if the Fed decides to hike rates soon, mortgage bonds could very well improve in a higher short term rate environment and that low mortgage rates will likely be around for some time.

The stock market is again showing signs of weakness this morning.  Historically, October is a rough month for stocks.  In fact, over the past 20 years, October has been the most volatile month for the stock market.  This year that trend appears likely to continue.  Times of high volatility don’t typically bode well for stock investors, with large swings in both directions often an indication of a bear market.  Many feel that we are still in the midst of a market correction.  If so, that will help add support to mortgage bonds and possibly improve mortgage interest rates.

With bonds still struggling, we will maintain our locking bias.  Look for a possible increase in market volatility this afternoon ahead of the Fed Minute release.