Locking bias

Mortgage bonds are down once again this morning, as global inflation, higher oil prices and continued optimism in the stock market seem to be contributing to interest rates ticking slightly higher. It remains to be seen how long this stock market rally will last. It could be a “Buy the election, sell the inauguration” scenario where stocks pull back once the transition is official. At that point, investors could realize that the barriers to fulfill pre-election plans may slow the process of change.  As past experience has proven, there will be fierce opposition to many plans President Elect Trump has in place. The fight could cause investors to get nervous and pull out until the directions of change have been approved and are underway.


We are moving from a Central Bank driven economy to a more fundamental, growth driven economy. As this transitions, we can expect an uptick in overall market volatility. The challenge is that market valuations have been inflated because of an immense amount of fiscal stimulus provided by the Fed. It could take some time for businesses to truly grow into the current price placed on their stock. True fundamental growth doesn’t move as consistently as we have watched the stock market grow over the past eight years when Fed spending and monetary policy were the primary drivers of the markets. Although expectations are generally favoring higher stock prices as well as higher interest rates in 2017, it will likely be a less direct path than that to which we have become accustomed.


Mortgage bonds remain under pressure and are still vulnerable to falling below support.  Until we see the strength within bonds to hold their ground, we will maintain a locking bias.

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