Locking bias

It was reported this morning by ADP that US employers added 298,000 new jobs in the month of February.  This was significantly higher than the market’s expectations of 185,000.  With most economic reports coming in stronger than what is anticipated by polling economists, it seems that polling numbers are losing credibility.  This report now sets the stage for a strong Bureau of Labor Statistics report on Friday.  Because of the good news on the job market, mortgage interest rates are higher today than they were yesterday and are just below the multi-year highs they hit back in December. 

As mortgage bonds continue to fall, we will soon see if the floor of support created last December when interest rates hit multi-year highs, is strong enough to prevent further losses.  It seems safe to say that we are now in an upward trending interest rate environment.  Since rates never move in a straight line, we generally see a significant loss followed by a recovery of up to 50%, followed by another period of losses.  This trend can go on for years and often takes many months in between the periods of significant loss.  We can expect to see rates continue to worsen over time, with this now being the set up for a possible step up in rate. 

With bonds continuing to drift lower, we will maintain our locking bias.