Locking Bias

Mortgage bonds are again down today, and stocks are pushing higher.  As we mentioned yesterday, mortgage bonds hit a critical level and were poised to make a move one way or another.  So far, history is repeating itself, as bonds were again pushed lower.  If this pattern continues, mortgage bonds have a long drop that will subsequently push interest rates higher.  In addition, the 10 year treasury note yield is pushing higher which will also influence longer term interest rates.

Janet Yellen confirmed yesterday that the Fed is still on course to taper Quantitative Easing.  Although this initially was a drag on the stock market, it now appears that the S&P 500 is poised to make another run at all-time record highs.  Again, this will be a crucial time for the stock market, as each of the last two times before the dotcom burst, the highs were followed by large drops in the market.  Will stocks surpass this critical level and set new records, or will history repeat itself again?  We will watch this closely, as the outcome will have a significant impact on the future direction of mortgage interest rates.

We are at a dangerous spot with mortgage bonds.  Therefore, we are going to maintain a locking bias.  The recent run in the stock market appears to be gaining steam which will be a drag for mortgage bonds.  Watch closely, as markets could be moving quickly.

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