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Locking Bias

Mortgage bonds have drifted down to the floor of support that is holding the APR on mortgage loans from moving higher. This move comes on the day of the release of the news as to whether or not Great Britain will exit the European Union. The US stock market is experiencing a bit of a rally on growing expectations that the UK will vote to remain. The Brexit Referendum has been passionately fought on both sides of the battle. Since a vote to leave would create a high level of uncertainty, big business is fighting hard to remain. However, many of the working class feel they have carried too great of a burden under the current system to want to remain.

Although the overall impact of a Brexit or a vote to stay is unknown at this time, we can expect a vote to stay to cause the US stock market to experience additional gains and mortgage interest rates to suffer. However, it is expected that some of the likely vote to stay is already priced in to both the stock and bond markets. This accounts for the stock market rally that is now underway. We expect to receive the results of the vote around 6:30 pm MST, which is after the markets have closed for the day. We can expect an elevated level of volatility today and a potential strong move in the morning. Given the current polls, it doesn’t appear to be a favorable event for mortgage rates.

Once again, there remains great risk in floating. We may experience a “buy on the rumor sell on the news” scenario where the stock market sells off after the vote. However, the safe play will be to maintain our locking bias heading into the Brexit referendum vote.

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