Locking bias

Mortgage bonds are starting the week off up a bit and stocks are starting slightly lower.  This will be a relatively slow economic news week, which will provide a bit of relief from the action packed weeks we have had recently.  With the lack of news, bonds will likely be heavily influenced by the technical picture.  So far, the technical outlook for both mortgage bonds and the 10 Year Treasury Note are positive.  If the stock market continues to decline throughout the day, that would help support higher bond prices, as money typically flows in between the stock and bond markets based on which is performing that day.


As we move into the final months of the year, it is interesting to note that most economists believed that mortgage rates would be in the 5%-6% range on a 30 year fixed term loan at this point of the year.  Some very well respected financial predictors even believed rates would exceed 6%!.  As you can see, today’s 30 fixed conventional mortgage rate is now at 3.875%, which is well below where rates started the year and significantly lower than most expected.  As we look at the direction of rates over the next few months, it is certainly possible that rates could remain low.  As QE3 winds down in October, the markets will be left to function entirely on their own.  This is a huge variable for the stock market, which has had unprecedented growth the past five years.  A long overdue correction in the stock market would provide further support to the bond market.


Mortgage bonds are still trapped between a tight level of support and resistance.  Therefore, there isn’t much room for improvement.  It is important to remember that each time in the past 14 months that bonds reached the top of this channel, they were quickly pushed lower.  In some cases, the push lower has been significant.  With little potential benefit to floating, we will maintain our locking bias.  It will be important to watch the 10 Year Treasury Note.  If the yield is pushed down to 2.40 or below, that will be a positive sign for mortgage rates in the near term.

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