Be on close watch

The bond market is breathing a sigh of relief after the Bureau of Labor Statistics reported that 192,000 new jobs were created in the month of March.  This was slightly below estimates of 206,000, but still a good number that shows continued strength building in the job market.  Also adding to the strength were upward revisions for both January and February, with a total increase of an additional 37,000 new jobs.  In terms of the unemployment rate, well it remained steady at 6.7%.

I see a lot of evidence out there showing that there is a widening gap between the rich and the poor.  A closer look at today’s Job’s Report provides further evidence supporting this theory.  A breakdown of jobs relative to education level is as follows:

Less than High School Diploma   72,000 new jobs

Less than College Degree             314,000 new jobs

Some College                                    28,000 new jobs

Bachelor’s Degree and Higher    (345,000) reduction in jobs

This also explains why wage inflation is virtually non-existent.  Companies have experienced record profits and stock prices, but this cash flow has not yet made its way down to the employee level.  As I mentioned yesterday, many companies are using excess cash to buy back stock rather than invest in employees.  At some point, however, this trend will reverse and corporations will be forced to invest in higher wage jobs and training and development.  At that point, wage inflation will move higher, over-all inflation will increase, and mortgage rates will push higher in response.

With mortgage bonds celebrating today’s news, we will recommend a floating bias today.  Bonds are now above their 200 day moving average.  As long as we hold above this level today, we will suggest watching the market closely to see if bonds can continue moving higher.