What's going on and why does it matter?
Mortgage bonds are now trading firmly below their 200-day moving average as the bond market finally seems to be coming to terms with the increased risk of higher interest rates. The producer price index (PPI) came out this morning hotter than market expectations, showing that wholesale inflation has posted the largest annual gain in six years. This increases the chances of more Fed rate hikes going into 2018. The Fed is scheduled to issue their monetary policy statement tomorrow, and the market will be focused on the "dot plot" whereby various Fed policymakers indicate their individual estimates for the future direction of interest rates. The Fed is scheduled to purchase up to $1.51 billion of 30-year conventional mortgage bonds today, but they won't be buying any mortgage bonds tomorrow due to their meeting.
What should you do about it?
Lock your rate to be safe.