Be prepared to lock

Mortgage bonds started the day to the up side, supported by a lack of strength in the stock market.  The stock market was unable to break above its 100 day moving average and has pulled back a bit.  This has helped add strength to both mortgage bonds as well as the 10 Year Treasury Note.  From a technical standpoint, the charts are looking positive for bonds and not good for stocks.  If weakness in the stock market continues, and if stocks fall below current support, mortgage bonds and the 10 year treasury will likely break through resistance.  This would be a positive sign for mortgage rates, which may be due for another attempted improvement.

Pending Home Sales were reported for the month of October.   Although slightly lower than expected, the report showed a gain of 0.3%.  Since Pending Home Sales measures signed contracts on existing homes, it is a real time reflection of the housing market.  On a year over year basis, Pending Home Sales are now up 1%, which is the first annual gain in 11 months.  With the report also showing that inventories starting to build back up, overall the report was decent.

The Fed meeting will conclude on Wednesday, with a Fed statement released afterwards.  We fully expect the formal end of Quantitative Easing III.  Since this is a negative for the stock market, stocks may struggle to hear the news.  Although it is fully expected, there is some hope that the Fed will extend its historic investment into the markets.  If stocks slide on the news, that would help boost bond prices, as the money will likely flow out of the stock market and into the bond market.

With mortgage bonds currently performing well, we see no reason to rush to lock.  However, if you choose to float, watch the markets closely.  The volatility lately has been extraordinarily high, and sentiment can change quickly.  Be prepared to lock.

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