Locking bias

Locking Ahead of the BLS Jobs Report

After days of waiting for the right time, mortgage bonds finally tried to break above their 200-day moving average. For a brief time, you could see the head poking out on top. However, as expected, the moment was short lived, as mortgage bonds were forced back to submission. As talked about in recent updates, history shows that after attempting to break above this level, bonds have suffered losses that in some cases have been semi-dramatic. Will we once again relive the past?  Since odds of this are high, we should be prepared.

Today’s ADP Jobs Report showed that job gains in the month of May were much stronger than expected.  While the market was anticipating 170,000 new hires, the actual report came in at 253,000. This now sets the bar a bit higher for Friday’s Bureau of Labor Statistics announcement. If that report shows strong gains, the road will be paved for a rate hike when the Fed meets this month. This rate hike is in alignment with the path outlined by the Fed earlier this year.

The US stock market has been hovering just below all-time high levels, and are now staging another rally. If tomorrow’s jobs report is strong, that could provide the catalyst to set new records. This could increase upward pressure on mortgage interest rates.

With bonds failing to break out of the current channel, we will maintain our locking bias.