Mortgage Interest Rates Tick Higher

After bouncing off the 25-day moving average yesterday, stocks are continuing their technical run higher once again this morning. We can now expect to see stocks climb up towards the top of the trading channel, which will continue to provide a headwind for the bond market as investors sell bonds to take advantage of the momentum in the stock market. The bad news for the bond market is that there is a coupon roll-over at the end of business today that will technically push bond prices beneath another important floor of support. Once beneath this level, we could see additional losses accumulate as there will be nothing to stop the fall until the next floor; which is well beneath current levels. Rates have already ticked higher this week and it appears that there is more room for rates to move higher before we see them stabilize.

According to the National Federation of Independent Business, Positions Not Able to Fill rose by 1 point from the prior month and remains the “Single Biggest Business Problem” for small companies. Generally, a tight labor force is the primary driver of higher wages, which is a forward indicator of near term inflation. Given that inflation is the arch enemy of mortgage bonds, we expect this to contribute to higher mortgage interest rates in the near term. Until the US economy shows signs of slowing, mortgage rates should continue to climb higher.

Given the weakness in the bond market, we will maintain a locking bias.