03 Mar Locking bias
Mortgage bonds continue to tread water, trading in the middle of a range with strong overhead resistance. The negative tone in bonds has been fueled by surprisingly strong economic data highlighted by inflation, employment and housing. The big news is still ahead of us, with tomorrow being the release of the Bureau of Labor Statistics (BLS) Jobs Report outlining new jobs created in the month of February. That single report has the ability to shake up the bond market, moving interest rates one way or the other depending upon the results. Given the recent trend of strong economic data, supported by Wednesday’s strong ADP report in job growth, it seems likely that this will be a strong number. That is bad news for mortgage interest rates, which could be pushed higher as a result.
The recent strong economic news has caused weakness in the stock market. Investors fear that continued strong data will cause the Federal Reserve to continue the path of higher interest rates, which ultimately adds strength to the US dollar and creates additional headwind to US companies selling their goods and services overseas. Once again, tomorrow’s BLS report could add further downward pressure to the stock market. Given the Fed’s goal of maximum employment while maintaining a 2% rate of inflation growth, a strong employment number would confirm that both mandates are nearly met.
Once again, we will maintain our locking bias heading in to tomorrow’s BLS report. Although it is very difficult to accurately predict, indicators point towards the report meeting or exceeding expectations.