Locking Bias

The Bureau of Labor Statistics (BLS) released their report on the job market for the month of July this morning. For the first time in a long time, it came in nearly exactly as anticipated. It was reported that 215,000 new jobs were created in the month of June, and the unemployment rate remained steady at 5.3%. The Labor Force Participation Rate also remained steady at 62.6%, which is the lowest level in 38 years. The lower level of Americans in the workforce has helped to drive the Unemployment Rate lower. It would actually be a healthy sign for our economy to see more people step back into the workforce, even if that drives the Unemployment Rate higher. The recent surge in the number of Americans receiving government benefits, combined with a strong stock market allowing many to retire, has driven the Labor Force Participation Rate lower.

Also of importance, we did see an uptick of 0.2% in the average hourly earnings report, as well as an increase of 0.1 hours in the average hourly workweek. Since both are inflationary, they are welcomed signs by the Federal Reserve of a stronger job market. However, not friendly news to the bond market.  Because both figures were inline with what the market had anticipated, the reaction has been muted and mortgage rates had minimal change.

Bonds remain trading in positive territory. We will likely see the move up to be halted at the top of the channel where bonds were pushed lower a few days ago. Since there is only one remaining BLS Jobs Report before the highly anticipated September 17th Fed Meeting, unless that shows weak numbers in the month of August, we can anticipate a hike at that time. For now, we will maintain our locking bias unless bonds are able to break above the current ceiling.

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