Locking bias, but could they bounce?

Mortgage bonds fell in late trading yesterday.  As we mentioned would likely happen in yesterday’s update, bonds dropped down to the bottom of the channel and are now testing a critical level of support.  Based on the charts, it seems that things may get worse before they get better.  The stock market is again pointing higher this morning and the 10 Year Treasury Note Yield is pushing higher and is now at 2.00%.  A break above the 2.02% yield will be very negative for the near term direction of mortgage rates.  We are hoping this level holds.  However, the momentum is strong and not moving in a favorable direction for interest rates.

I talk a lot about oil prices, as the implications of rising oil prices tend to drive mortgage interest rates higher.  The move higher in oil has correlated with increasing mortgage interest rates and a rising stock market the past week.  Once again, oil prices are moving higher this morning which will create a headwind with mortgage rates.  It remains to be seen whether or not this move higher is sustainable or if this is just a short term increase.  The answer to this will certainly influence mortgage rates, so be watchful in deciding when to lock in.

With bonds currently sitting just above support it is likely that mortgage pricing will get worse before it gets better.  If you lack the stomach to handle the volatility, we suggest locking at current levels.  However, there is a good chance that current support will hold and that bonds will bounce higher in the next 48 hours.  Although there are no guarantees; that is what typically happens when bonds are at the bottom of a channel.  Breakouts are rare to the upside or to the downside.  However, they do happen and rates could continue to get worse.