‘Lackluster’ continues to be the best way to describe the performance of mortgage bonds, as we wake up to more of the ‘same’ in early morning trading. Bonds continue bouncing between support of their 100 day moving average and resistance of their 50 DMA. This range has at least helped mortgage rates from deteriorating too much, as the 100 DMA has proven to be a strong level of support. However, the risk of bonds making a break lower is increasing as the day wears on. Will today be the day we see the APR on mortgage loans move higher? It is certainly a possibility. We will have to wait and see.
A shrinking stockpile of oil is contributing to continued rising prices, with oil surpassing the $50 per barrel mark for the first time in six months. There are signs of a two-year surplus finally coming to an end, which is great news for energy related businesses. Prices are now up more than 80% from the low of $27.10 we saw in the month of January. Commodity prices overall have experienced significant advancements over the past couple of months. This does not bode well for mortgage interest rates, as increasing commodity prices trigger higher levels of inflation. Although inflation levels are still expected to be below hoped for levels, the increase in inflation levels will be a difficult pill for the bond market to swallow, and higher mortgage interest rates may be the short term impact.
With bonds continuing to show weakness, we will maintain our locking bias. There is certainly a hope that bonds will bounce off of their 100 day moving average and make a run higher. However, it’s too risky to float in hopes of a run higher at this time.