Locking bias

After breaking below the 25 and 50 day moving averages this morning, mortgage bonds found some strength and recovered their earlier losses. Bonds are now just above the 25 DMA and trying to stay above water.  It will be a positive sign for bonds if they are able to close the day above this critical level.  With Friday’s highly anticipated Bureau of Labor Statistics Jobs Report just around the corner, the market can use all the strength it can muster as we move into this report.

Early this morning we received ADP’s estimated new hires for the month of August. They reported an increase of 177,000, which was very close to estimates of 175,000. They also increased July’s estimates by an additional 15,000, from the initially reported 179,000 up to 194,000. Although still strong, it’s interesting to note that private payrolls as reported by ADP haven’t exceeded the 200,000 mark since last March. There has clearly been a slowing in the job market, which isn’t a positive forward indicator of growing economic strength. However, the pace of new hires must certainly slow as we approach what the Federal Reserve considers to be Full Employment.

We can anticipate a bit of increased volatility as we head into Friday’s report. Current estimates are for 180,000 new hires to be the target. Today’s ADP figure will help soften the anxiety of a stronger report ahead of the release. In the meantime, there is likely a limited benefit to float in the short term. The near term direction of the market will likely be determined by Friday’s report.