Waiting on Fed Announcement

Mortgage bonds are near flat for the day, as they dangerously ride along at the lowest levels we have seen in more than seven years. Since this translates to the highest mortgage interest rates have been in more than seven years, this isn’t a good position to be in. At the close of the market today there will be a bond coupon rollover. This is significant because it likely will push the price of mortgage bonds below the seven-year low, which is significant only from a technical picture. At the end of the day, we need to plan for mortgage interest rates to climb even higher in the months to come.

The Federal Reserve is set to announce their interest rate decision today. Although there is no chance of a rate hike being announced, it is likely that they will set the market up to anticipate a hike when they meet next in December. If this happens, which I believe it will, this will be the fourth interest rate hike in 2018. Since the market was only expecting a total of three hikes this year, the additional hike could have a greater impact because not all investors priced that into the market beforehand. This could cause the 10 Year Treasury Note yield to step up even higher, which will likely trickle down to higher mortgage interest rates as well.

With the technical picture not looking good for mortgage bonds, we will maintain a locking bias.