07 Jun Watching the Trend Lines
After several strong days, the rally in the mortgage bond market is showing signs of weakening, as bonds struggle to break above the next important ceiling of resistance. But with three consecutive closings above their 200-day moving average, bonds now have a strong floor of support not too far below current levels. If bonds aren’t forced below this, we could still see a longer-term improvement to mortgage interest rates. Tomorrow’s testimony of ex-FBI Chief James Comey could prove to be a catalyst that will dictate the next significant move in the mortgage market. If information is revealed that increases impeachment chatter, bonds will likely benefit.
In a surprise turn of events yesterday, China stated that they may be willing to once again start investing in US Treasuries. This unexpected announcement was a significant driver in yesterday’s trading volume, as China could once again help bring interest rates down if they make significant purchases. It was rumored that China selling treasuries was partially responsible for the multi-trillions of dollars that left the US bond market last November, when interest rates spiked higher following the announcement of Trump’s election. The reverse of this could happen, where we see rates fall even closer to pre-election levels. Since that is only about 1/4% in rate below current levels, this is becoming more of a possibility.
Rates never follow a straight line, regardless of their longer-term direction. For loans needing to close quickly, you may want to consider locking. There is certainly a gamble in floating in the short term. Provided we stay above the trend line, longer term locking isn’t as much of a concern.