Locking bias

Mortgage bonds continue to show weakness amid an exuberant stock market. The S&P 500 tried to achieve a new record high this morning as news out of Europe showing stronger than expected growth gave investors a reason to celebrate. If the 10 year Note Yield moves above the critical 2.02% point we have discussed in recent updates, mortgage interest rates will take another step higher.  However, if the 10 year is able to fight off the bulls and maintain beneath this level, bonds will eventually gain the strength to move higher.

The big news in the US was Consumer Sentiment for the month of February.  It came in at 93.8, which was well beneath expectations of 98.5.With last month’s reading showing 98.1, this represents a substantial drop in how consumers feel.  The news of low oil prices and the potential longer term impact to our US economy is partially to blame for the drop in confidence among consumers.  It was also supported by last month’s Retail Sales figure showing a decline in the month of December.  Since the strength of our economy largely rests on consumers making purchases, this is not welcome news.  However, it has done little to slow the strength in the stock market or to help improve bond pricing.

With mortgage bonds continuing to show significant weakness, we will maintain a locking bias for those who need to close quickly or simply cannot stomach the volatility.  We are still hopeful that we will see a bounce higher in the near term.  However, there is no certainty that will happen.  Since mortgage pricing deteriorates quickly in times when bonds are weak, the risk of floating remains high.