Risk of floating remains high

Today is a critical day for the bond market, with the 10 Year Treasury Note yield being squeezed between its 25 and 50 day moving averages. We will see this break in one direction or the other, with the near term direction of mortgage interest rates hanging in the balance. If the break is below the 25 DMA, that would be a great sign for mortgage rates. However, a break above the 50 DMA would provide a clear path for the 10 YTN yield to jump another 13 basis points without any resistance. Since the yield has not been above this market since pre-Brexit, this is a rather significant move. We will have to watch closely to see how things play out.

The Consumer Price Index (CPI), which measures inflation on the consumer level, was released this morning. July’s report was flat for the month, and up 0.8% year over year. The more important Core Rate, which strips out food and energy prices, was up 0.1%, which was slightly below the markets’ expectations of +0.2%. Year-over-year, the Core Rate fell from 2.3% down to 2.2%. Overall, this is another weak number that supports continued low mortgage interest rates.

The risk of floating remains high. Therefore, we will maintain our locking bias.