09 Jun Suggesting a locking bias
Stocks are climbing higher this morning, as they look to establish new all-time high levels. Unfortunately, mortgage bonds are once again beneath their 200-day moving average. This is a terrible defeat for mortgage interest rates, as it at least temporarily squashes hopes of a trend reversal where rates would more likely fall than climb higher. Bonds now have a long way to fall before reaching their next floor of support. If stocks continue to make gains, we could see rates move higher in the near term.
Next week will be a big news week, highlighted by inflation data as well as the Federal Reserve’s interest rate decision. Rates will increase by ¼% at the meeting, pushing the discount rate over the critical 1% level. Since this move will not be a shock to the market, the big concern for bond investors will be any talk about when the Fed plans to reduce their purchases of mortgage backed securities and 10 Year Treasury Notes. Since that will create upward pressure on mortgage interest rates, we need to closely listen for clues.
With bonds now below their 200-day moving average, we will suggest a locking bias.