Movement in the bond market has been minimal the past couple of days, as investors patiently await Friday’s Bureau of Labor Statistic’s (BLS) report on the job market. This volatile report has the power to set the direction of near term interest rates. Therefore, many investors sit on the sidelines and hold off on placing any significant bets on the markets until the report is released. Many economists have lowered their expectations after ADP released 156,000 new hires for the month of April. This was much softer than the 200,000 figure anticipated. Generally, the market experiences an increased level of volatility the day before the BLS releases their estimates. We could see bond holders take some profits off the table to avoid the risk of a surprise to the upside.
Oil prices were pushed beneath $45 per barrel once more yesterday, but are moving higher so far this morning. The recent fall in oil added further downward pressure to the stock market, which had a tough go for four of the past five trading days. However, stocks are a bit higher at the open this morning. With oil prices also moving higher today, stocks will have more fuel to continue their move higher. This will act as a headwind for mortgage bonds and could limit any potential improvement.
Initial Jobless Claims for last week were reported this morning to be 274,000. This represents an increase of 17,000 from the prior week’s 257,000 and was 12,000 higher than estimates of 262,000. Although this is below expectations, we must consider that recent weeks have been at multi-decade lows for new Claims. Therefore, this is still a strong report.
Trying to speculate a market’s reaction to an important job report is challenging. Since there are many components that go into the report, the Headline number isn’t the only market moving part of the report. Although ADP’s report was low, that doesn’t necessarily mean the BLS report will be equally as disappointing. In light of that, we feel the safe play will be to lock ahead of tomorrow’s release.