Locking Bias

Today is a quiet economic news day, so mortgage bonds will likely take direction from the stock market as well as continued geo-political news.  Unfortunately, two Ukrainian Military Jets were shot down over Ukraine.  This adds to the nervousness over air travel in the Middle East, which has been restrained lately due to safety concerns following the Malaysian flight that was shot down from 33,000 feet last week.  The tension in this region has added pressure to the markets.  However, the stock market still appears immune to reality, and hit a new intra-day high yesterday.  The rally in the stock market was fueled by strong earnings reported for the second quarter of 2014.

Mortgage purchase applications showed a marginal increase last week, but are still reported to be down 15% from this time last year.  Interest rates were reported unchanged from last week.  Overall, mortgage purchase applications have been trending lower, which has not been an encouraging sign.  The larger concern is what will happen to the purchase market after the stronger buying months of summer.  Historically, these are slower months for home sales.

Mortgage bonds are facing a stiff level of overhead resistance this morning.  It will be an encouraging sign if they can muster the strength to break above this level.  However, with mortgage bonds being at the top of a trading range, the safe play is to lock.  The general rule is to consider locking when at the top of a trading channel, and consider floating when at the bottom.   If you choose to float, watch carefully, as ceilings often push bonds lower quickly.