High risk in floating

The attempt made by mortgage bonds to create an upward channel has failed proving that the correction in the interest rate market has not run its full course.  When bonds were at the top of their trading channel on Friday we felt it was a good time to secure an interest rate.  Since then, bonds have dropped and are now at the very bottom of the channel, which is what was anticipated to happen.  This fall in bond pricing has happened at the same time we have received numerous negative economic reports that would typically have helped boost bond prices higher.  However, this time that has not been the case.  It is clear that traders aren’t yet willing to give up on the stock market continuing its climb higher.

The NASDAQ surpassed the psychological 5000 level yesterday.  The last time this index was at this high is 15 years in the past.  Both the DOW and the S&P 500 have set record highs many times in the past year.  However, at some point stocks will need to take a break from their run higher.  When this does happen, bonds prices and subsequently mortgage interest rates will be the beneficiary.  Although we feel there is a great chance we will see the market improve at some point in the near future, it just isn’t meant to be at the moment.  The best we can do is ride out this terrible patch that has been going on for a month now and hope that rates will improve soon.

Given the current picture, we are going to maintain our locking position.  We would typically suggest floating while at the bottom of a trading channel.  However, tomorrow we will receive the first of three readings on the job market for the week.  The big one will be Friday’s Bureau of Labor Statistics Job’s Report.  If this is weaker than expected, we may see rates improve.  However, the report could also show continued strength in the job market.  The risk of floating is higher than typical at the moment.