10 May Mortgage bonds appear to be weakening – locking bias
Stocks prices are sharply higher and mortgage bonds are slightly lower to start the morning. It is a relatively slow day for economic reports, so markets will be heavily influenced by the technical factors. As we mentioned in yesterday’s update, mortgage bonds are right near multi-year highs. This puts mortgage interest rates near lows over the same time frame. Anytime we hit such high levels, we must be cautious in our decisions of whether to lock or float. From a technical perspective, bonds are in an over-bought position, meaning they are ripe for a reversal to the downside. It would be expected to see bonds move toward the bottom of the channel, which will pressure the cost of mortgage rates a bit higher.
The stock market has broken out of the downward channel it was in, and is now on a strong path higher. The S&P 500 has had a difficult time getting back above the 2100 level. It currently sits at 2078 and is still climbing. We could see it stall as it approaches 2100. However, it may have the strength to muscle through and break above this level. That would also provide a headwind for mortgage interest rates, as investors would likely sell bonds to move more cash into the stock market.
With mortgage bonds appearing weak at the moment, we will maintain our locking bias.