Safe play is to lock

After yesterday’s strong rally higher, mortgage bonds are starting the day to the down side.  The stock market stepped off a ledge yesterday, with the DOW falling 326 points.  As we have talked a lot about lately, the stock market continues to show signs of melting down.  With the Federal Reserve stepping down its bond purchases, it appears the market is weary of being able to sustain these lofty prices without government support.  Although the Fed is still buying, it is understood that the stated goal is to be out of the bond purchase program sometime near late 2014 or early 2015.

Core Logic reported a year over year home value appreciation up 11%.  Although that is great news, November to December shows a 1% drop in values.  Most importantly, they anticipate next month’s report to show -.8%, which is a continuation of the dropping trend.  We are closely watching home valuations, and will keep you posted as information is released.

As we head into the middle and end of the week we will see three readings on the job market.  With weather being a continued concern in many parts of the country, there is a chance the reports will again miss expectations.  We feel the Fed’s bond purchase program has so far failed to achieve its stated objective of significant job growth, although it has contributed to a steady increase in the jobs market.  We feel that continued improvement in the housing market is critical to our over-all recovery.  With the bond currently at the top of a trading channel, the safe play is to lock today ahead of tomorrow’s ADP Employment Report.  However, should that report miss expectations, there is a chance we will see a small improvement.  The question is whether the potential gains are enough to justify the risk of floating.