Mortgage Bonds partied like rockstars yesterday after the conclusion of the Federal Reserve Open Market Committee Meeting. Although they avoided the term “patience”, Fed President Janet Yellen made it clear that the Fed was not going to raise rates until inflation is showing signs of increasing and we see continued strength in the job market. However, the Fed left the timing completely open for a rate hike, which doesn’t exclude a hike in June as most experts have predicted. We continue to believe it will not happen in June, and that a hike in 2015 may not happen at all. If an initial hike does happen in 2015, we feel the pace of increase will be very slow. A hike may be what is needed to tame the growing anger amongst critics who feel the Fed is not doing enough to protect us from a pending “bubble”.
Both the stock market and bond market were significantly higher yesterday, with mortgage bonds and the 10 Year Treasury Note both climbing above the ceilings that have held them down the past several weeks. This was a very positive indicator for interest rates. Even if they fall back beneath support, it will be easier for them to make another run higher. So far this morning, mortgage bonds have broken back beneath support. This is concerning because it is happening in the face of a continued stock market sell-off. Hopefully bonds will find stability and gain momentum to make another run higher at some point. However, there is no certainty that will happen.
With bonds breaking beneath support, we will suggest a locking bias to take advantage of yesterday’s gains. Mortgage rates improved about .125% in one trading session, which is considered a significant improvement.