08 Jun Bond Market Stabilizing
Both mortgage bonds and stocks are slightly higher in early morning trading, as investors remain hopeful for a quick economic recovery. With millions of people already back to work, we can expect to see the number or people returning to the labor market continue to climb. Since economist clearly failed to see this when estimating last month’s Job’s Report, which led to a greater than 10,000,000 job swing between what was anticipated vs. reality, I suspect this mistake will not repeat itself in June’s projection. Since many of those who were laid off due to Covid have or will soon be returning to work, the greatest concern should be where we see numbers settle when the market stabilizes. Many are expecting the Unemployment Rate to remain above 8% for an extended period of time, which is too high to justify stocks being so close to all time high levels.
Although today is a relatively slow day for scheduled economic reports, this week is full of news. For one, the Federal Reserve is scheduled to make their interest rate announcement on Wednesday, followed by a speech from Fed Chairman Jerome Powell. Since the market does not expect the Fed to change short term rates, they will be intently listening for clues about what the Fed plans to do to ensure market liquidity and its path to economic recovery. At this point, we don’t anticipate any shocking announcement, just for the Fed to reiterate their commitment to ensure rates stay low by investing in mortgage backed securities and by purchasing Treasury Notes.
With mortgage bonds at the bottom of a trading channel, we see no immediate rush to lock. However, if you choose to float, do so while closely monitoring the markets, as sentiment can quickly change.