Too risky to float

Mortgage bonds are holding at multi-year highs, which has mortgage interest rates nearly matching the lowest levels in more than two years.  The strength in the bond market is encouraging to see, considering that the US stock market is also near all-time high levels.  At this point, stocks are showing signs of weakening.  This could help push bond prices even higher, driving mortgage rates to low points not seen in more than two years.  However, it’s too early to make this call, as there is generally an increased difficulty breaking out of ceilings that have been in place for a long time.  If bonds are able to break higher, we will be in for a nice improvement.  This is an exciting time for sure!

The 10 Year Treasury Note yield is also falling, and currently is beneath all moving averages.  With yields now at 1.76%, they have another 22 basis points to drop before hitting the next floor at 1.542%.  With the exception of a very brief drop to 1.542%, what lasted for minutes, the low point of more than 2 years was when the yield fell to 1.67% in February of 2015.  The low yields we are now seeing are heavily influenced by the global interest rate market.  When many currencies are paying near 0% returns, and in some cases even charging to hold on to investors’ money, the US treasury market looks extremely attractive. 

With mortgage pricing as attractive as it now is, there is great risk in floating.  The general rule is to lock when at the top of a channel and float when near the bottom.  Although rates could improve from here, there is no way to say for sure if or when that will happen.  Unless bonds make a break above the current ceiling, we will maintain our locking bias.