Bonds still losing ground – locking bias

The Bureau of Labor Statistics released its estimate of new job creations for the month of August. Interestingly enough, it was a miss. While the market was anticipating 180,000 new hires and for the Unemployment Rate to hold steady at 4.3%, the actual report showed only 156,000 new jobs along with an increase in the Unemployment Rate up to 4.4%.  In addition, the prior two month’s reports were revised lower, reversing another 41,000 jobs that were thought to be added.  Contrary to what many believe to be true, the rate of job growth has been on the decline since President Trump was elected. Although the stock market has been consistently setting new all-time high records, the labor force hasn’t climbed at the anticipated rate.  Combined with lower inflation over this same time period, mortgage rates should not be making any significant increases.

After hitting levels not seen since early November of last year, bonds have been losing ground. Unfortunately, today’s low report hasn’t helped improve mortgage rates. The stock market, on the other hand, is celebrating the news of the morning and is now making another run at setting all-time record highs.  This is extracting money out of mortgage bonds, as investors look to capitalize on the run higher in stocks.  We can now expect bonds to run down to test the bottom of the channel.  Fortunately, the trading channel is tight, so mortgage pricing won’t likely get too much worse.

Given the continued weakness in the bond market, we will maintain our locking bias.