Mortgage bonds have experienced significant volatility already this morning, at one point driving mortgage interest rates to their highest level since September of 2014. With bonds now trading below another significant layer of support, we could see prices fall to their next floor which is approximately 73 basis points beneath current levels. With the downward channel, still strongly in place, it seems that may be the direction we will see bonds head in the near term. That would mean another increase of up to ¼% in interest rate. Therefore, the hope is that bonds will find support before we see that happen.
After hitting new intra-day highs this morning, the US stock market has pulled back a bit. This Wednesday will be the day the Federal Reserve releases their decision to raise short term interest rates. Hopefully, this will help stabilize the bond market and prevent further damage to mortgage interest rates. It has been about a year since the Fed raised rates for the first time in nearly 9 years. It was shortly after that increase when the US stock market took a significant drop. Although stocks were able to quickly correct themselves and come back stronger than ever, it may have provided at least a short-term opportunity to lock in a lower rate. However, there is no way to say for sure how the stock and bond markets will react. Therefore, any speculation is just a guess.
With bonds again heading lower, we will maintain our locking bias.