978k People Got a New GIG

Jobs numbers are interesting because there are two measurements that come out one after another. Tomorrow, we get the BLS reading, the most highly regarded jobs reading. But today we go the ADP Employment Report and it’s looking good… just not for mortgage bonds. The Employment Report showed that 978k jobs were created in May – a small 378k over the estimate! The reason that this is not good for mortgage bonds is because as unemployment falls and inflation rises, the Fed will start to spend less and less in MBS purchases which is keeping mortgage rates so low. Now, most economists think that this is a ways away, but this jobs number is a step in that direction.

On the other side of the coin, the US still has a record number of people on government assistance. While initial jobless claims for May was the lowest since the beginning of the pandemic, it was still at 385k. In addition, continuous jobless claims (people who were collecting unemployment last month and continue to this month) actually grew by 169k to over 3.7m. Then when you add back in Pandemic Assistance and other Relief, there are over 15m people collecting government assistance. So, while the ADP report looks promising, the country still has a long way to go when it comes to unemployment.

Tomorrow’s jobs report will be taken more seriously by the market but the MBS market is not optimistic. MBS’ are down 19 bps today and are sitting on top of their 50 DMA that could easily be broken with a strong jobs report tomorrow. We are holding a strong locking bias going into tomorrow’s report.