Strong consumer confidence continues to shape the direction of the US economy. As I’ve said, no amount of financial spending can overcome the negative psychology within the consumer and the small business owner’s mind. This is evident by the amount of government and Federal Reserve spending over nearly the past decade that failed to get the economy fully rolling. Now, even under the pressures of tightening monetary policy, the economy has a strength to it that has not been seen in some time. Almost like water boiling beneath the surface, you can feel the US economy ready to take off. The fear will soon become an overpowering economy that the Fed will have to raise rates quickly to tame.
Tomorrow is a big day for the bond market, as it will bring the Bureau of Labor Statistics’ Jobs Report for the month of February. Given the strength of the ADP report on Wednesday, it seems likely that the BLS will be surprisingly strong as well. This comes at a terrible time for mortgage bonds, as they are already sitting just above multi-year low prices, meaning multi-year highs for interest rates. Further, with next week’s Federal Reserve announcement almost a shoe-in for another rate hike, the near-term direction of mortgage interest rates is not looking favorable. In addition, if the Fed happens to suggest they will discontinue future investments into mortgage backed securities, look for a quick ¼% or more jump up in mortgage interest rates.
We will maintain our locking bias heading into tomorrow’s job report.