Locking Bias

Mortgage rates took it on the chin yesterday after the Federal Reserve statement was released yesterday.  From yesterday morning to today, rates are between .125% and .25% higher.  The markets were reacting to Fed President Janet Yellen’s statements that the Fed may be completely out of the bond buying mode by this fall, and that short term interest rates may move higher as early as six months following the Fed’s departure from the market.  The thought of short term interest rates moving higher as early as next spring spooked the markets and caused a major sell off in fixed income assets such as mortgagebacked securities.

So, where do we go from here?  So far today, mortgage bonds are continuing their losses and the stock market appears to be poised to climb even higher.  From a technical standpoint, mortgage bonds have fallen through most of the significant floors that were beneath them just yesterday, and the 10 Year Treasury Note yield is above all of their moving averages.  This is terrible news for the near-term future of interest rates, and likely signals higher rates ahead.

Today’s weekly unemployment claims came in at 320,000, which was below expectations of 325,000.  The number of new unemployment claims is trending lower as the job market continues to strengthen.  Also, Leading Indicators and Philadelphia Fed Manufacturing Survey both came in stronger than anticipated.  This has helped the stock market turn positive and and has pushed mortgage bonds lower.

We will maintain our locking bias today.  We feel there will be upward pressure on mortgage rates as we move into warmer months.  Strong economic data combined with fewer asset purchases by the Federal Reserve create an environment where higher interest rates are likely.