The bond market so far seems to like the recent increase in the Fed Funds rate. Bonds were able to break above a critical support level this morning and are now pushing up against the 25 day moving average. If they are able to make a break above this point, they have a clear shot up to the 50 DMA, which sits just beneath the 200 DMA. Therefore, today’s bond performance will be an important sign in deciding the near term direction of mortgage interest rates.
The stock market seems to have realized that the rate hike is not in its best interest. As a result, stocks have been push beneath their critical 200 day moving average and continue to fall. If stocks maintain their path lower, this will provide additional boost to the bond market and will help pressure mortgage rates lower.
Next week will be filled with important data that will help decide where mortgage rates go from here. The two most important influencers of mortgage rates are those measuring inflation and GDP, both of which will be reported on next week. If bonds are to make a break higher, they will need support from the reports of next week. In the meantime, realize that there is an elevated level of risk in floating an interest rate. With bonds not yet able to break above support, there is a good chance they will be forced lower. If you choose to float, do so carefully and only if able to watch the market closely.