Mortgage bonds have spent the past 8 trading days sitting on a floor of support. When this happens, the floor eventually becomes weaker and over time is susceptible of breaking. Well, on the 9th day, this finally happened. Since this move just occurred, it’s too early to say if this move will be temporary or if it will lead to greater losses in the near term. Since there happens to be another layer of support just 25 basis points beneath current levels, bonds could find traction there. I suspect we will see bonds bounce off that level or sooner to be back above the floor it broke beneath this morning. We will have to wait and see what happens from here.
The Federal Reserve kicked off their two day FOMC meeting, with a policy and interest rate announcement due tomorrow at noon MST. With the current global economic conditions still in a state of high uncertainty, this is about the least anticipated Fed meeting we have had in many months. Virtually no economist is predicting a Fed rate hike to be announced tomorrow. After more realistic expectations were established at the last Fed meeting, the earliest most are expecting a rate hike is December. There would have to be a strong indication of growth between now and then for that to be a reality.
Bonds are likely to bounce off support below if they continue to fall and seem poised to trade in a wider sideways channel until news causes bonds to make a decision on which way to make a break. For loans needing to close in the near term, we will maintain our locking bias.