Market Commentary 2/17/17

Mortgage bonds remain range-bound as the 10-year U.S. Treasury note continues to trade this week between the 2.40% -2.52% range. Overall, bonds are trading well even in the face of multiple factors, including: a higher stock market (all major indexes are at all time highs), evidence of inflation as seen in the recent CPI report, solid regional manufacturing data, and the somewhat hawkish comments that came out of the Fed this week.

We wrote last week about banks’ tightening their interest rate margins in response to slowing mortgage demand. We continue to see this play out and believe this is a good reason to lock-in interest rates at these levels. The positive economic data supports higher interest rates which is evidenced by rising CPI, low unemployment, and high asset prices in real estate and in equities. When we consider the aforementioned issues with the potential (as yet to be unveiled) tax reform plan, then it is hard to argue for lower interest rates in the near term.

With interest rates still at historically attractive levels, we are biased toward locking-in rates given all of the data that suggests the potential for higher rates in the coming months.