Mortgage bonds woke up this morning to news out of Europe that their bonds faced a massive sell off while we were sleeping.This pushed their yields up
by 50% in one trading day alone in some cases.This shocked our bond markets, and quickly US bonds suffered from the dramatic jump in interest rates
in Europe. As rates move higher in Europe, our bond yields move higher, as both countries are competing for the same investment dollars.
Low yields in Europe have been one of the significant factors contributing to holding our rates down in the US. With their rates heading higher,
US interest rates will certainly move higher as well.
Mortgage bonds are well off the upward trading channel that helped improve rates from the highs they reached three weeks ago. At this point, the
upward channel appears to be little more than a head fake, with rates appearing to now be back on an upward trend. At this point, it is likely
that rates have had a reversal in the downward trend that carried them lower for nearly two straight years. If the trend has in fact reversed,
we can expect for mortgage rates to steadily head higher for the coming months or years. Although depressing news at the moment, there still
exists a chance that bonds can get back on track. However, this doesn’t appear likely at this point.
With bonds suffering significant losses, we suggest a locking bias. It is difficult to predict when the losses will stop. Rates have moved
up 1/8% in just two days, and the losses could continue.