03 Dec Locking bias
The losses in the bond market continue so far this morning as investors take profits off the table ahead of tomorrow’s Bureau of Labor Statistics Jobs Report that will provide job growth numbers for the month of November. After ADP reported stronger than expected new hires, the market is adjusting their expectations for the BLS report. This move lower has pushed bonds beneath their 25 and 50 day moving averages which now appear destined to fall to the next support level which sits about 15 basis points beneath current levels. In similar fashion, the 10 Year Treasury Note yield also broke above its 25 and 50 DMA and now have a clear shot higher up to the 2.33% range. This is not a good sign for mortgage interest rates.
European Central Bank President Mario Draghi stated today that the ECB vows to extend its Quantitative Easing (QE) program until at least March of 2017. In similar fashion to what the Federal Reserve did here in the US, their program is to purchase $60 billion of assets per month. Further, they decided to reinvest the principal payments on their securities as they mature for as long as necessary. This significant move comes at a time when the US is tightening their central bank policies. While Europe continues to struggle, the US is facing near full employment, a strong US dollar and relatively strong housing growth. This is a very unique global situation.
With mortgage bonds continuing to struggle, we will maintain our locking bias. Watch closely tomorrow’s BLS report. Stronger than expected employment growth will essentially lock in a December Fed Rate hike, and could create exaggerated volatility within the bond market.