30 Sep Bonds performing well so far this morning
In a sign of technical strength, mortgage bonds have been able to poke their head above their 200 day moving average. If the steep upward channel bonds are currently moving within holds, we could be in the beginning stage of a technical breakout. However, it is too early to say for sure if this will continue. We were in this position in the month of August, just before bonds took a nasty spill lower. We need a few days with bonds closing above the 200 DMA to know if this is a real breakout or just a head fake.
We received the first of three readings on the job market today, with ADP reporting that 200,000 new jobs were created in the month of September. This is 10,000 more than the 190,000 anticipated by the market and a sign of continued health for the US Economy. The August report was adjusted lower by 4,000, taking the final figure down to 186,000 from the 190,000 originally reported. We will receive the more important report on Friday when the Bureau of Labor Statistics (BLS) reports their estimate. The market is looking for a number in the 200,000 range. Given the ADP figure, combined with low Unemployment Claims and a tight labor force, that number is easily achievable. A number much higher than 200,000 could push bond prices back below their 200 DMA. That would likely put us back in the same range we have been trading in.
With bonds performing well so far today, there is no immediate need to rush in to lock. However, if you float do so only if you are able to watch the market. Sentiment can reverse quickly.