Low Rates Through 2022?

Stocks are falling hard this morning, as investors begin to question their own judgement regarding the future of the US economy.  Stocks were on fire for weeks, showing the strongest 50 day rally in the history of the stock market.  However, that was based on assumptions of a quick recovery.  With Covid rates in many states now rising at a pace faster than before the quarantine, many are beginning to realize that the fight is far from over.  If this trend continues, it will add further downward pressure on stocks, which will be supportive of continued low mortgage interest rates.

Yesterday’s Fed announcement went as planned, with no changes to short term interests rates and a continued commitment to their asset purchase program that is helping to support low mortgage interest rates.  Most notably, the Fed stated that they expect short term interest rates to remain near 0% through the year.  That takes any concerns of an unexpected rate hike off the table for a long time.  Again, this will help hold low mortgage interest rates for a very long time.

As we discussed yesterday, mortgage bonds are near the top of their trading channel.  As a rule the safe play is to lock when near the top and float when near the bottom.  As a result, we will maintain a locking bias.