13 Feb Not worth the gamble, continue a locking stance
Mortgage bonds are beginning the day making up for yesterday’s losses. However, although bonds are performing well today, the most important consideration is that we have broken out of the improving channel that brought interest rates down to multi-month lows. At this point, the likely path will be for bonds to move back down another 160 basis points lower over the coming weeks. If this happens, mortgage rates will push at least .25% higher. There is a small chance that bonds will improve and get back into the channel. However, we don’t see that as a likely scenario. From our perspective, mortgage rates are more likely to deteriorate in the coming weeks.
Retail sales were down .4%, which is well below expectations. Also, initial jobless claims came in at 339,000, which is 8,000 higher than last week’s report. We feel the reports are a bit distorted due to the inclement weather back east. Variables such as this often impact markets and influence economic growth.
With mortgage bonds below the channel, we feel that a locking position is warranted. Although we may have some days when the market is improving, unless we are on an upward trend, rates will stay flat or increase over time. These markets are not worth gambling by floating an interest rate.