After setting a new record yesterday, the S&P 500 is currently down. This helped boost mortgage bonds right up to the 100 day moving average. New unemployment claims were reported this morning at 326,000, which was a decrease of 2,000 from last week’s revised level of 328,000. More importantly, the Consumer Price Index was released this morning and was within expectations. The Core CPI, which strips out food and energy, remained stable with a year-over-year increase of a subdued 1.7%. This key figure is closely watched by the Fed as well as bond traders. When that number moves higher we will see a move higher in mortgage rates.
With mortgage bonds pushing up against the 100 DMA, they are now at the top of a trading channel. Our general recommendation is to suggest locking when we are at the top and floating when at the bottom. If bonds are able to muster the strength to break through this level, we will see slightly better pricing. From a risk / reward tradeoff, the safe play is to lock.