We will maintain a locking bias

Stocks are continuing their two day losing streak and bonds are receiving the benefit so far this morning.  News out of China that they have tightened their credit is having a “butterfly effect”  that is negatively impacting stock markets around the world.  Further, Fed Vice Chair Fischer once again opened his pessimist mouth, this time reiterating that we have become too used to low interest rates and when they go up they will go up for some time.  Comments like this would typically cause mortgage interest rates to jump.  However, so far his comments have hurt only the stock market.  Based on Fischer’s history of comments and Fed voting, he seems to be wanting to create an environment where his opinion is right.  He has stood on the wrong side of reality for most of the financial meltdown and I assume would love the opportunity to be vindicated.

The National Federation of Independent Business (NFIB) reported that optimism among small business owners increased nearly 2 points in December from 96.1 to 98.  This number far exceeded expectations and was the best reading in nearly 8 years.  Of the 10 components surveyed, four improved, three remained stable and three declined.  Most importantly, the “Expect the economy to improve” component was up an astonishing 16 points and “Expectations for real sales volumes” was up 5 points.  As we learned from the most recent economic collapse, small business is a significant driver of overall economic activity.  As the small business owner expands so does our economy.  It is no longer just about “big” business these days as it was many years ago.  It is encouraging to see the entrepreneur spirit once again back to life.

Both mortgage bonds and the 10 Year Treasury Note have improved since yesterday, and are again looking strong today.  The critical levels of support both held in each market which is very encouraging for the direction of mortgage interest rates.  Mortgage bonds are now at the top of the trading range which makes floating more risky.  Since bonds have failed to break above these levels since May of 2013, we are going to suggest a locking bias.  If bonds are able to make a decisive break above current resistance, mortgage rates could take a step lower.  However, history has shown that right now is great time to lock, since each time we have been pushed lower.

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