Locking Bias

Mortgage bonds are giving back some gains this morning after 4 days of moving to the top of their price channel.  Yesterday’s move lower for stocks helped the bond market, but the move seemed disproportionate.  The Dow dropped 170 points and closed at 14,776, which is roughly 872 points or 5.5% lower from its all-time high at the beginning of August.  Interest rates have pulled back from their year to date high, but their attempt to drop any lower is being limited by the dominant trend of rates pushing higher.  With the issues at hand like Syria, the debt ceiling, and the recent stumbling economic reports – such as slower housing numbers, the Fed has to see that allowing rates to move much higher risks stalling out the housing recovery.  But these same issues have not been enough to push rates lower, so prices continue to trade in what’s become a familiar price channel.  Since prices are at the top, we will suggest a locking bias.