Mortgage bonds are continuing their downward move, and will likely fall to the bottom of the current channel. This has hurtmortgage rates, pushing the cost to achieve a particular interest rate higher. The 50 day moving average is just below current levels. Hopefully this support level holds. However, there are early signs of a negative stochastic indicator, suggesting worsemortgage bond pricing ahead. Should the 50 day moving average give way, bond pricing may drop to last week’s lows.
The stock market is again showing its ignorance to global economic risks, as the stock market is continuing its push higher. It seems that very little risk of the Russia / Ukraine conflict erupting further has been priced into the market. Therefore, should the issue escalate; stocks could face a sell off. That would provide support to the bond market.
The markets will be focused on this week’s pending employment reports as well as the Federal Reserve’s Open Market Committee Meeting. The FOMC meeting kicks off today, with the results reported tomorrow at 12:00 pm MST. When the FOMC reports, markets can react with volatility. Many times in recent history, bond pricing deteriorated significantly in the moments following the statement.
The Case Shiller Home Price Index for February was released this morning. The month over month index was up .8%, which modestly beat estimates of .7%. The year over year increase was reported to be 12.9%. Although strong, the trend is certainly slowing. Also, Consumer Confidence for April was reported at 82.3. This was below estimates of 83, and also below last month’s upwardly revised 83.9.
With mortgage bonds unable to find their footing, combined with the inherent risks of the pending employment and FOMC reports, we will continue with our locking bias. There appears to be more risk in not locking rather than potential gains in floating. Be on guard as the week plays out. It will likely get exciting as the news of the week heats up!