The 10 Year Treasury Note yield is climbing higher so far this morning after yesterday’s attempt to break back beneath its 200 day moving average failed in late day trading. This adds additional concern to where mortgage rates are heading in the days and weeks to come. With many members of the Federal Reserve talking about a December interest rate hike, investors are clearly selling bonds to avoid the risks associated with the move. Most realize that the talk of a hike could be more harmful to bonds than the actual announcement. Therefore, we could see many step back in to the bond market once the announcement is made. Since the next Fed meeting is one day prior to the Presidential elections, it is unlikely we will see a hike in November. However, as long as there isn’t a significant slowdown in economic reports, a rate hike in December is probable.
We received news of stinger inflation this morning, with the Producer Price Index (PPI) showing an increase of .3% for the month. This was higher than the .2% anticipated. The more important Core Rate, which strips out food and energy prices, was up .2%. Year over year, the Core Rate moved higher from 1% up to 1.2%. Although this figure does not necessarily reflect inflation on a consumer level, it is a forward indicator of consumer inflation.
With mortgage bonds still under pressure, we will maintain our locking bias.