What's going on and why does it matter?
Mortgage bonds opened lower today, but it appears that they are getting ready to bounce higher off their 10-day moving average, which has been a strong level of technical support for the past three weeks. As for the big three events that are likely to move the markets today:
(1) The European Central Bank trimmed its inflation forecast for Europe, but nudged up its economic growth forecast and indicated that no further rate cuts in Europe are planned.
(2) Early polling in the UK general election seems to indicate that Prime Minister May’s Conservative Party would get its increase in the majority that she wants in order to strengthen her Brexit negotiations. However, official results from the UK election are not expected until after polls are closed at 5 pm London time (noon Eastern time).
(3) The prepared Statement of Record from former FBI Director Comey did not provide any information that could lead to the impeachment of the President. However, markets will be closely watching the Q & A portion of his testimony today to see if he provides more information about Trump’s campaign and possible Russian involvement in the US election.
All in all, nothing earth-shattering in the news cycle so far, but we'll watch and see how the day progresses. The Fed is very supportive of the mortgage markets today with a scheduled to purchase up to $1.625 billion of 30-year conventional mortgage bonds.
What should you do about it?
Watch for mortgage bonds to bounce higher off their 10-day and 200-day moving averages, but be prepared to lock your rate quickly if bonds fall back below those critical levels of support.