From a technical standpoint, mortgage bonds have broken beneath the lower side of an upward channel that has helped mortgage rates improve the past month. Although this is a negative move for the mortgage market, the reality is that bonds have truly been in more of a sideways trading pattern for the past 9 trading days. The ceiling of resistance that bonds have been beneath for well over two years proved too strong of a barrier for the upward channel to breach. Therefore, they traveled sideways, right out of the upward channel. It is important to note that bonds are still trading just below multi-year highs, making now an incredible time to secure an interest rate.
Oil prices are moving higher once again this morning, with Light Crude Oil now exceeding $41 / barrel. This is a strong climb from the sub-$30 prices of earlier this year. The drive higher in oil is in-line with an overall increase in the commodities markets, and is helping fuel the stock market higher. It seems likely that the pace of the rise in oil prices with at least moderate, with a good chance of prices not moving too far above current levels. Keep in mind, however, that the summer months generally have stronger demands for oil. Therefore, we could see excess stockpiles of oil slowly dissipate as consumer demand heats up. That is generally a good sign for stock and a negative sign for mortgage interest rates.
With mortgage bonds lacking the strength to make a break higher, we will maintain our locking bias.