Locking bias

Emotional trading in the bond markets continues today, with mortgage bonds falling all the way down to their 200 day moving average this morning. 
This significant move lower takes mortgage bonds out of a much longer term upward trend that has been intact for nearly two years.  There was a brief
moment in September of 2014 when bonds temporarily broke beneath this critical channel.  However, they quickly recovered and got back on track. 
If bonds aren’t able to recover quickly, this could very well be a long term trend reversal.  That would be an extremely negative sign for the future
of mortgage interest rates and would cause us to change our long term opinion on the direction of interest rates.  As long as they remained within
the nearly two year improving channel, rates were heading lower.  However, that will not be the case if this channel is decisively broken. 

ADP released their estimate of job growth for the month of April.  While the market was expecting a reading between 190,000 – 205,000, the actual
report showed that only 169,000 new jobs were created.  In addition, they reduced their previously reported 189,000 estimate for the month of
March down to 175,000.  Since March’s Bureau of Labor Statistics report was far below the ADP release, we anticipated the reduction.  This
Friday we will receive the more significant BLS reading for April job creations.  The market will be watching this report closely, as it knows
that the Fed will take the current state of job growth into consideration as they decide when to hike interest rates.

If we change from being on a long term trend of improving interest rates to one of deteriorating mortgage rates, the need to lock quickly will be far more
significant.  Although there will be short term opportunities to float for a small improvement, the overreaching bias will be locking.  Given
the current state of emotional trading, we will maintain our locking bias.  Rates have moved up ¼% in a short period of time.  The opportunity
to secure a rate beneath 4% may be short lived.