28 Apr Action packed news week/Locking bias
Mortgage bonds moved up to the top of the trading range on Friday, and are now on their way down. At the point of bonds hitting the ceiling, coincidentally, Pending Home Sales were reported to be much stronger than anticipated. While the market was expecting an increase of .7%, actual increase was reported to be 3.4%. This is a nice sign of encouragement for the housing market as we move into the busier months of summer. However, this was not friendly to the bond market. As a result, bond prices are moving lower.
The stock market is recovering from its drop lower last week, with the S&P 500 currently up 12 points. This dramatic change happens in spite of increased sanctions being announced by President Obama against Russian interests, and an increase in tension between Russia and the Ukraine. The US is in a bit of a tough spot trying to balance the scale of discouraging Russia from taking further steps in the Ukraine, and avoiding backlash that could hurt the US or European economies. With Europe’s economy in such a fragile state, finding solutions that won’t cause further global economic damage are difficult. Further, given that Russia is a large holder of US debt, the known consequences of Russia selling all their US bonds increases the stakes of negotiations.
We have an action packed news week, with Friday bringing us the Mac Daddy of Reports – The Bureau of Labor Statistics Jobs Report. We all know the volatility tied to this report, with the near term direction of interest rates being heavily influenced by the results. The market is anticipating 205,000 new jobs created. If actual growth is greater than anticipated, bond prices will likely suffer and mortgage rates will be pushed higher.
Mortgage bonds are still trading in a sideways channel. After hitting the top, we will suggest a locking bias for today. If upward momentum in the stock market continues, this will provide further headwind for mortgage bonds. As we move into the volatility of this week’s reports, the safe play will be to lock in to protect yourself from potential losses caused by stronger than anticipated reports.