After breaking above a ceiling of resistance, the yield on the 10 Year Treasury Note has moved up quickly. It appears that yields are destined to hit the 1.96% level that we identified in yesterday’s update. This is adding to the upward pressure on the cost of mortgage interest rates, which continue to climb higher. Hopefully, mortgage bonds will be able to find support at the Fibonacci level that is not far from current levels. However, it looks like mortgage pricing is set to get worse before it stabilizes.
The Federal Reserve is kicking off their two-day meeting today, with the outcome expected to be released tomorrow at 12:00 pm, MST. There is little expectation of a Fed rate hike. However, the markets will be closely listening for clues as to the near term direction they will take. Today’s Durable Goods Orders report only showing an increase of 0.8% certainly supports the need to maintain lower rates for the time being. This report was only ½ of the 1.6% anticipated by the markets, so it was considered a huge miss. Further, after stripping out transportation, Orders were down 0.2%. With the market anticipating an increase of 0.5%, this also was a miss.
The downward channel in the price of mortgage bonds remains in place. Therefore, we will maintain our locking bias.