Yesterday’s battle in the 10 Year Treasury Note market was ultimately lost, driving yields above their 50 day moving average. This loss carries a significant impact to mortgage interest rates, as mortgage bond yields tend to follow similar patterns. With yields in the 10-year market now having a clear path higher to their 100 DMA, we could easily see yields jump another 11 basis points above current levels. So far, mortgage bonds have been able to stay above their 50 DMA. Hopefully that support level holds. However, if it doesn’t, we will likely see an additional increase to the APR of mortgage interest rates.
Peter Boockvar, a well-respected economist, wrote this morning that stock market sentiment reached a “danger level”. As we have mentioned in the past, investor sentiment is something we pay close attention to when it becomes overly bullish or bearish. This morning, Bulls grew another 1.9% to 56.2, which matches the highest level in 16 months. At the same time, Bears fell .9 points to 20, which is the lowest level in over a year. Additionally, the Bull/Bear spread is the largest in 14 months. What does this mean? A contrarian view would see this as an over optimistic market, making it subject to greater risk. We all remember “Irrational Exuberance” in the markets pre-recession. We are once again at irrational levels and behavior within the markets. This could be a sign of rough patches to come.
Today is Fed Minutes day, which generally aren’t favorable to mortgage bonds. We will maintain our locking bias.