Safe play will be to lock

Mortgage bonds have drifted a bit lower so far this morning, as stocks attempt to recoup some of their recent losses.  This is an important week for mortgage interest rates, with three major reports on the job market scheduled for release.  On Wednesday, we will receive an estimate of new jobs created in the month of April from ADP, followed by Thursday’s report on new Unemployment Claims and ending the week with the “Mac Daddy” Bureau of Labor Statistics (BLS) report.  The market is expecting that 200,000 new jobs were created last month.  However, it seems like this could be a bit of a low estimate.  Given the recent low levels of new Unemployment Claims, combined with warming weather, we feel the report could be a surprise to the upside. 

Mortgage bonds were able to briefly break above their 25 day moving average.  However, they have since been pushed back beneath.  The 10 Year Treasury Note yield is sitting right on its 50 day moving average.  As long as it is able to remain above this level, mortgage bonds will likely experience minimal losses.  However, a break below this would add additional upward pressure to mortgage interest rates.  Further, if stocks are able to break above their 25 DMA, that would also create additional headwind for mortgage bonds.  If seems like each market is waiting for another to make their move before deciding which direction to take. 

Given the increased risk of Job’s week, combined with the overall negative tone within the bond market at the moment, locking is the safe play.  If you take the risk of floating, watch the markets closely and be prepared to lock.