15 Apr Safe play may be to lock
Mortgage bonds are higher to start the morning. Bonds began the day up yesterday as well, but were pushed lower as the day wore on. Although bonds
are currently in a shorter term sideways trading pattern, they are still in a much longer term upward channel that is helping maintain low mortgage
rates. This morning, Industrial Production, Empire Manufacturing and Capacity Utilization all missed expectations. This helped keep bonds
trading right at the bottom of this channel. As long as bonds maintain above the bottom of the channel, mortgage rates will continue to improve.
It could be the release of Friday’s Consumer Price Index (CPI) report that either keeps bond in the channel or causes them to break beneath.
Based on recent reports, it is likely we will see continued weak inflation, which will help improve mortgage interest rates.
The next couple trading days will be extremely important for the near term direction of mortgage interest rates. The reality is that bonds are currently
at the bottom of a long term upward channel, but also have a very significant ceiling of resistance just above us. This means that bonds will
be “squeezed” into making a decision one way or the other. Either way, bonds will be making a break out. This typically leads to a significant
move one direction or the other. Unfortunately, we can’t predict which direction they will go. All we can assume is that the move will
be a big one.
With bonds now in a vulnerable position, floating is very risky. Since a breakout will likely lead to greatly improved mortgage rate pricing, or
significantly increased pricing, a choice to float will either prove to be highly beneficial or a very wrong decision. Due to the risk associated
with floating, the safe play is to lock.