Mortgage bonds have taken it on the chin the past couple weeks, and are now below the 100 day moving average. With only the 200 day moving average below us, any increase in the bond market will be met with multiple layers of overhead resistance. This will make a significant move higher much more difficult. Also, the 10 year treasury yield moved up above its 50 day moving average and is now testing the 100 day moving average. A break above this level would be very bearish and would provide a significant headwind for mortgage rates.
Mortgage loan applications were reported at the lowest level they have been in nearly 14 years. In fact, the last time applications were this low was in December of 2000! This is not a healthy sign for our overall economic health. Whether buying and selling a home or refinancing to reduce monthly expenditures, this will provide a significant boost to our economy. As consumers free up room in their monthly budget, they are able to use that extra income to make other purchases. Purchases are now 14% below where they were at this time last year.
The technical picture for mortgage bonds is ugly. Although there is strong support not too far below, the momentum in the market is strong. This increase in mortgage rates is also happening while the stock market is flat to slightly down. A move higher in stocks would pressure rates even more. With the outlook not looking favorable for mortgage bonds, we will maintain our locking bias. We are hoping to see the market stabilize in the next couple of trading days. We will keep you posted and see how this shakes out.