After weeks of losses in the bond market, we have a green candlestick on the bond charts this morning. There is no real news that led to improvements to mortgage bonds. It’s hard to say if this is the beginning stage of a market correction. However, it could be. If so, we will have about 70 basis points to potentially gain to recover half of the losses absorbed over the recent weeks. Interestingly enough, if you look at a 15-month snapshot of the bond market you will see that this last summer’s mortgage bond improvement took bonds to where they regained about 50% of their losses that followed shortly after President Trump was elected. That sets the stage for a longer term move higher in mortgage interest rates, as prices are now likely to drop below the lowest levels they reached in 2017 in the months to come.
The U.S. government is back in business today, following an agreement signed by President Trump to kick the preverbal can down the road on longer term government funding deals. At least for now, Federal workers are back to work and the government is proceeding as usual. The shutdown had little impact on the markets, as most know it is a game politician’s play to get their way.
Mortgage bonds are trying to break out of the brutal downward channel that has driven interest rates higher the past few weeks. If they can close above the channel, we could see further improvements. Although there is little need to immediately lock, understand that floating comes at a risk. Bonds could fall back into the channel and push rates even higher. So, float carefully if that is the direction you choose.