Locking Bias

The short-term memory for the US stock market that was discussed in yesterday’s market update has kicked in once more. Investors seem to be “over” the threat of military action between the United States and North Korea.  As a result, stocks are blasting higher this morning.  This is taking away some of the gains the bond market experienced yesterday.  It is certainly an interesting market we are in.  If a nuclear threat isn’t enough to help boost bond prices above levels not seen since early last November, it’s hard to say what will.  Stocks seem to be the primary holdback of mortgage rates improving.  When the US stock market eventually falls, as history shows is well overdue, mortgage rates may then receive the boost they need to come back to pre-election levels.

Today is a slow day for scheduled economic reports, so markets will trade more heavily based on the technical picture.  Given that stocks are climbing higher, this will provide a headwind against mortgage bonds.  With bonds still at the very top of the trading range, they are vulnerable to a move lower.  History would predict the next move in the bond market to be that bonds will head lower to test the bottom of the channel.  This would be a healthy move that could help bonds gain steam in the days or weeks to come.

We will maintain our locking bias.