23 Sep Watch the market very closely
Mortgage bonds slowly climbed their way to the top of the trading channel and are now battling resistance. If they are able to climb above, they should make their way to the triple layer of resistance at the 25, 50 and 100 day moving averages. That will be a difficult level for bonds to break above, and will likely create some volatility as bonds approach that level. However, the stock market has been under pressure the past couple days, with the S&P 500 dropping below 1990 after reaching an all-time intra-day high of 2020 just last Friday. If downward pressure in the stock market continues, that will help support higher bond prices in the near term.
Overnight, the US and allies launched airstrikes against ISIS in Syria. In addition, the Obama Administration issued new rules to deter US companies from moving their headquarters overseas to reduce their tax liabilities. Both of these are adding downward pressure to the stock market, and are creating a flow of cash from stocks into bonds. This is helping push bond prices higher, which in turn creates downward pressure on mortgage rates. The “flight to quality”, as it is referred, will likely continue as the markets digest the ongoing news and geopolitical threats today.
As we test resistance, the risk of floating increases. However, we see no immediate reason to lock right now. It is likely that we will see a bit of a pullback in the bond market as it works its way higher. The volatility will put us in positions to issue temporary locking biases. As we often mention, the rule is to lock at the top of a channel and float when near the bottom. If the losses in the stock market gain momentum, that will be a positive sign for mortgage rates. Watch the markets closely and be prepared to lock should the current course reverse and push bond prices lower.