Mortgage bonds continue to drift lower and are now sitting directly on support provided by both the 25 and 50 day moving averages. The negative patterns we identified in recent updates have proven to be accurate so far. With job numbers starting to roll in tomorrow, we could be in store for a continued climb higher in mortgage interest rates. At this point, it appears that the only event that could help stop the damage would be weak job growth numbers. However, the signals so far aren’t supportive of this option. We will receive ADP’s estimate of job growth for the month of September tomorrow morning. That will be our first insight and will help us to better predict the BLS report that is due on Friday.
Fed members continue to shock the markets with talk of an imminent Fed interest rate hike. Most recently, Richmond Fed President Jeffery Lacker told an audience this morning that the Fed is close to its targets of full employment and 2% inflation. He further stated that current Fed Funds rates are too low and should be set at 1.5% or higher. Since that is more than 1% above current levels, this shows the dramatic increases that could be heading our way. This has helped contribute to today’s losses and could further impact markets in days to come.
With mortgage bonds continuing to drift lower, we will maintain our locking bias.