Mortgage bonds jumped higher out of the gate this morning, as the stock market is under significant downward pressure. The improvements in the mortgage market bring interest rates down to levels that haven’t been seen since May of 2013. More importantly, bond prices broke above the significant resistance level that has prevented mortgage rates from improving. Now that this barrier has been broken, bonds may be in for a dramatic move higher. This would continue to move mortgage interest rates even lower than they currently are. Whether or not this happens will also be dependent upon continued improvements in the 10 Year Treasury Note. This yield on the 10 YTN is now at 2.04%. A break beneath 2.02% will be a very positive move for the future of mortgage interest rates. With the next stop at 1.79%, there could be a nice improvement to bond prices which will translate into lower interest rates.
This will be a busy news week, which will be highlighted by Friday’s BLS (Bureau of Labor Statistics) reading on job growth for the month of December. Holiday months often produce unreasonably high figures. Therefore, this may not provide a true reflection on the job market. A high reading is negative for mortgage rates, while a low reading tends to help mortgage rates improve.
2014 proved to be a strong year for the US economy. Looking forward into 2015, Leading Indicators are pointing towards continued strength in 2015. Although this will provide upward pressure on mortgage interest rates, we feel that it will be a good year with continued low mortgage rates. We will put out our 2015 outlook soon.
With mortgage bonds breaking through resistance, we will suggest a carefully floating bias. The risk will be if there is a bounce higher in the 10 Year Treasury Note yield. Any time there is a significant barrier, once it is hit; prices tend to either bounce back lower or make a significant drop. Either way, the reaction tends to be exaggerated. With mortgage bond prices moving higher, that will help support continued improvement in the 10 Year market. Watch closely and be prepared to lock should sentiment change.