03 Dec Locking bias
Mortgage bonds suffered yesterday as the stock market moved higher. Stocks again opened the day to the upside and have touched on all time high closing levels once again. The pressure in the bond market has taken bonds off of the upward channel they have been riding. There are early signs of a downward pattern forming. However, bonds will hopefully find support at their 25 day moving average that is not too far beneath current levels. If this support holds, bonds will be trading in a wide sideways channel.
ADP reported their estimate of job growth for the month of November this morning. According to their reports, 208,000 new jobs were created last month. This is lower than the 225,000 new jobs the market anticipated, and 25,000 below the upwardly revised figures from October. This may set up for a weaker than anticipated Bureau of Labor Statistics report on Friday, which is currently anticipating a number in the 230,000 range. However, market expectations may drop a little before the release of the report due to today’s ADP lower figure.
We anticipate volatility in the markets to continue today. We feel the prudent approach is to maintain a locking bias. Once the risk of Friday’s BLS report is behind us, we can hopefully find a bit more stability in the bond market. Also remember that in addition to job growth and unemployment rate changes, the market will be looking for any sign of wage based inflation in Friday’s report. If there is even a hint of wage pressure beyond the market’s expectations, the bond market could react adversely in fear of the Fed moving more quickly to increase short term interest rates.