Mortgage bonds are sharply higher today in response to a surprise move from Australia’s Central Bank announcing that they were cutting their key interest rate by .25%. In addition, China released weaker than anticipated Manufacturing reports. Both of these moves caused the stock market to fall, with mortgage interest rates being the beneficiaries. This pushed bonds above a key ceiling of resistance that was a serious threat to the direction of interest rates in the short term. With bonds now above this level, there is a bit of relief as we head into the employment reports that begin tomorrow. Bonds are still at great risk of falling if the employment numbers are strong, which seems to be likely at this point.
We received good news on the housing market, when Core Logic released their Home Price Index for the month of March. It showed that on average, home prices appreciated 2.1% from February and 6.7% year over year. Further, Core Logic forecasts that prices will appreciate another 0.7% in April and 5.3% from March 2016 to March 2017. On a local level, home prices in Utah reported month over month gains of 1.5%, with year over year growth of 8.0% on average. This incredible rate of growth is not reflective of all markets. However, it is Core Logic’s estimate based upon the State of Utah reflected as an average.
Although bonds are above a key floor of support, there is great risk in floating. We don’t see significant gains from here likely until after the release of the imminent reports on the job market. If you need to close quickly, the safe play is to lock. If you choose to float, realize that bonds may experience losses before they improve again if the job numbers are strong.