It appears that my shift to a locking bias on Tuesday was premature. Mortgage rates are benefiting from demand for US Treasuries. When yields for US 10-year treasury notes decline mortgage rates tend to follow suit.
This is evidenced in the chart above which shows that the yield for the US 10-year note has fallen by ~.50% since the beginning of the year. Rates for 30-year fixed mortgages have declined by about the same amount.
So why are yields for the 10-year treasury falling? In the last couple days interest rates have benefited from month-end bond buying on the part of investment fund managers who have to maintain a certain allocation of fixed income in their portfolios.
Secondly, the US bond market is seeing strong demand from overseas investors who perceive relative value in the US versus Europe. The yields on German and UK government bonds have fallen recently because investors anticipate additional monetary stimulus from the European Central Bank in June. The spread between the yield on US and German debt has reached a multi-month high which is prompted investors to opt for US treasury debt instead. The additional demand has helped to lower rates here.
From a technical perspective the US 10-year treasury yield has broken below resistance and could improve by another ~.10% before hitting the next level of resistance. For now I will recommend floating to see if this rally can continue.
Current Outlook: floating