Stocks are in rally mode this morning. So far, this hasn’t pushed mortgage bonds lower. In fact, mortgage bonds have improved this morning and have crossed above their 100 day moving average. This move higher is significant and may set the near term direction for mortgage rates. The jump higher is mainly attributed to a modest read on inflation. The Personal Consumption Expenditure (PCE) was reported to be 0.3% on a year over year basis. When you strip out food and energy, the rate was up 1.4%. This shows very tepid inflation growth and is not a welcome sign for the Fed. Since this has historically been the Fed’s favorite read on inflation, it doesn’t bode well for supporting the need for a rate increase.
This is the week we will receive multiple reports on the job market. ADP will report their estimate of new jobs created in the month of March and the Bureau of Labor Statistics (BLS) reporting their estimate on Friday. The market will be looking for a reading between 225k-235k on both reports. This will be an interesting day in the market. Since Friday’s report is released on Good Friday, the stock market will be closed that day and the bond market will have an early close in observation of the holiday. Therefore, the market’s reaction to the report may be muted as a result. However, if the report shows that more jobs were created than anticipated, bond prices will certainly suffer, pushing interest rates higher.
Bonds are now sitting on top of their 100 day moving average. It will be a good sign if bonds are able to maintain their position. However, with this week bringing many readings on the job market, we can expect extra volatility. Therefore, the safe play will be to lock in today’s great rates to avoid the potential losses of a stronger than expected reading on the job market.