Locking here is the safer play

Mortgage bonds have made it back above their 200-day moving average, at least for now.  The move higher came in advance of the end of the Federal Reserve meeting which concluded today at 12:00 pm MST.  As expected, the Fed kept interest rates unchanged.  Given that next Tuesday is a Presidential election, there was virtually no chance that the Fed would take the risk of making a move that could influence the outcome.  Since a move in rates could hurt the US stock market, a hike could hurt the incumbent party.  With that said, there was very little reason to have the meeting scheduled at all.  The overall statement was very similar to what we heard last September.  Therefore, the reaction in the bond market after the release was muted. 

This morning’s ADP job report showed an increase of 147,000 new jobs in the month of October.  This was well below the 175,000 number the market anticipated.  However, September’s original report was revised higher by 48,000 from 154,000 to 202,000.  Overall, the report showed that 100% of the job gains were in the service industry, which has performed exceptionally well in 2016.  Of course, the more significant report will come on Friday when we receive the Bureau of Labor Statistics Jobs Report.  The market is looking for a number close to 165,000.  If we see a weaker than expected report, we could see mortgage bonds stabilize. 

With bonds currently above their 200-day moving average, there is no rush to immediately rush in to lock.  However, tomorrow is another day.  We could see further softening that leads to bonds breaking back below this critical level.  Be careful if you float, know that locking is certainly the safer play.