The stock market is one again shooting higher, as it looks to challenge new all-time high levels. This is draining money from the bond market, pushing mortgage interest rates higher. The ongoing news headlines reporting about incoming President Trump’s policies and objectives are creating fear within the bond market of higher inflation ahead. His plans of retaining jobs in the US economy and taxing imports are both inflationary. With inflation being the arch enemy of the bond market, this is not good for interest rates. Until news reports settle down, we’ll be in for continued volatility.
December 14th will be the date of the next Federal Reserve interest rate announcement. It is nearly a sure thing that short-term rates will be pushed higher. This could be the catalyst that finally puts an end to the upward run higher in mortgage interest rates. Since Fed interest rate hikes are a headwind for the US stock market, that could cause money to flow out of stocks and into the safe haven of the bond market. That’s what we saw last December after the Fed raised rates for their first time in nearly nine years. Will history repeat itself once more? We sure hope so.
These are unprecedented times, which makes predicting the longer-term direction of mortgage interest rates more challenging. As for today, bonds are not showing the strength needed to withstand current levels. Therefore, a locking bias is the safe play.