We will maintain our locking bias

Mortgage bonds remain trapped beneath their 200 day moving average.  Volatility is still extremely high, which is creating a challenge to those needing
to lock in an interest rate.  Yesterday’s pricing, for example, moved more than 50 basis points in cost within a couple hours once selling levels
in the bond market gained steam.  On a $250,000 mortgage, that equates to an additional $1,250 in fees.  Bonds have made three attempts in
the last three trading days to make a break higher.  However, each time they were forced back beneath support.  Another attempt has been
made today with the same result.  Even the terrible economic reports of the past couple days have not provided the juice needed to break higher. 
That’s not a good sign for the direction of mortgage interest rates.

One of the key factors the Federal Reserve is considering in deciding when to raise short term interest rates is inflation.  Today we received the
Producer Price Index (PPI) report for the month of April.  Although this measures inflation on the wholesale level, it is still a good indicator
of what will soon be happening with pricing on the consumer level.  The report shows that overall wholesale inflation was -0.4% for the month. 
The Core Rate, which stripped out food and energy costs, was also down, dropping by -0.2%.  Both figures were much lower than expectations. 
In addition, the year over year Headline number dropped from -0.8% down to -1.3% and the Core PPI dropped from +0.9% down to +0.8%.  These numbers
do not support an increase in consumer inflation, and are far from the where the Fed would like these to be. 

Unless mortgage bonds are able to break above their 200 day moving average, we will maintain our locking position.