Locking bias

There has been an increase in chatter from Wall Street traders and economists regarding the toll the low interest rate environment has taken on retirees and people who make their money off of savings.  It used to be that a person could retire and put their life savings into a relatively stable investment fund paying a continuous 4-6% and live mostly off of the interest it creates.  Thanks to the continued low interest rate environment we have been in for the past 7 years, those days are now a thing of the past.  With the absence of secure sources to earn a decent return, many are forced into the riskier assets such as stocks.  This has many angry at the Fed for holding near zero rates for an extended period of time.  Although this is a valid concern for our long term financial security, the sacrifice needed to raise rates could prove to be the costlier option. 

Mortgage bonds have been trading in a sideways channel and appear to have avoided forming a downward channel.  That’s great news and an indication of strength for the bond market.  However, it’s too early to say for sure that bonds are out of the woods.  The recent trend has been for bonds to begin the day higher and then weaken as the day wears on.  We could see this happen again today, putting bonds right back in the beginning stages of the downward channel.  It will be heavily influenced by stocks, which have shown signs of weakness the past couple days.  A continued deterioration in the stock market would help support mortgage rates.  However, if stocks are able to gain their footing, it will be at the expense of the bond market.

The markets are set to close early today and will be closed all day tomorrow in observance of Good Friday.  In the meantime, we see little benefit in floating.  Therefore, we will maintain our locking bias.