Interest Rates - Lock or Float

Current Trend Direction: Sideways

Risks favor: Cautiously Floating as Bonds rest on support

Current Price of FNMA 6.0% Bond: $100.88, -12bp

Stocks are trading higher, led by strength in Countrywide and Microsoft, and the flow of money into Stocks is coming by way of Bonds being sold. This has pressured Mortgage Bonds lower and down to support at the $100.84 level. Countrywide did report poor earnings, but not as bad as "the street" was expecting. They also provided some optimism for the future. At 12 Noon ET today, Countrywide will be holding a conference call for analysts, so the markets will hear more about what Countrywide sees for the future - and this will be especially interesting for us in the industry to hear Countrywide's outlook for the mortgage business in general.

The University of Michigan ’s Consumer Sentiment Index for October was reported at 80.9, which was less than expectations of 82.3. The Fed watches this index as a determining factor in monetary policy . Mortgage Bonds improved slightly on the weaker than expected news.

Technically, Mortgage Bonds are showing signs of topping out at long-term resistance after reaching a level of previous market peaks over the past couple of days. But for the moment, prices are attempting to hold at support at the $100.84 level. Should Stocks continue to move higher, it may wear on Bonds and push them beneath this support.

Looking ahead, we are expecting a Fed rate cut next Wednesday. Like we saw last month as well as many times in the past, a Fed rate cut initially helped Bonds, but they were eventually pushed lower. We would like to be patient and float until the Fed Meeting next Wednesday, but should prices drift any lower, we will quickly switch to a locking stance and preserve the recent gains.