03 Jul Supply and Demand Likely to Drive Rates Higher
The 25 day moving average held yesterday, preventing mortgage interest rate pricing from changing too much from where it started in the morning. Today, this support level provided an opportunity for bonds to bounce higher and once again challenge their 100 day moving average. With today being a shortened trading day and markets closed tomorrow in observance of Independence Day, it is unlikely we will see much from the bond market today. Further, traders will not be willing to place large bets ahead of Friday’s Bureau of Labor Statistics Jobs report. If anything, we can expect to see pricing weaken as we had into the close of trading as investors take chips off the table ahead of the report.
With the calendar rolling into the month of July, the stage is set for a bit of a tumultuous second half of the year for the bond market. Starting this month, the Fed will drastically reduce the amount of mortgage backed securities and 10 Year Treasury Notes being purchased. Further, the second half of 2018 will require significantly more bond auctions just to keep the US government running as the federal deficit continues to swell to unprecedented levels. With more supply needed and less demand in the market, this will add a great deal of upward pressure to mortgage interest rates. Unless we start to see signs of a recession, we can expect higher interest rates.
We will maintain our locking bias.