Mortgage bonds received a late afternoon bounce after finding a floor of support that at least temporarily stopped the rapid fall that had been in place for five trading days. The good news going into today is that Friday’s bounce established the floor to be a strong layer of support that could help bonds from making a significant fall today. Stocks, on the other hand, have had a rough time since setting new all-time highs last Wednesday. Although we would generally expect weakness in the stock market to help improve mortgage bonds, that hasn’t been the case so far today. We must see how the day plays out.
Although today is slow day for scheduled economic news, this is overall an important week for the bond market. On Wednesday, we will receive job growth numbers for the month of February from ADP, with the Bureau of Labor Statistics following up on Friday with their estimate as well. Markets are expecting between 185,000-190,000 new hires to be reported. However, given the strength of recent reports, combined with the overwhelming level of consumer and small business confidence, we could see stronger than anticipated numbers released. With this being a significant driver to influence the Fed to hike rates, we must remain on guard as the reports are released.
I anticipate that the bond market will begin to prepare for a strong job report on Wednesday, which means many investors will sell their holdings to protect their money. Thus, the safe play will be to have a locking bias ahead of the potential market moving release.