Lowest Jobless Claims Since 1969

Mortgage bonds remain trapped in a tight trading range. This range has held for several weeks now, which has provided a great deal of stability to mortgage interest rates. The charts, however, are once again forming a pendent-type pattern. This generally predicts a breakout coming in the near term in one direction or the other. At this point it seems bonds are waiting for some major news to help decide if the next move is for rates to take another step higher or if it’s time to see some improvement. The greatest probability is for rates to worsen. Whichever direction they choose, there is significant room for bonds to move. This suggests an exaggerated move once a breakout does occur.

There isn’t much going on, so there’s not much to talk about. The news we did receive today was not bond-friendly. One important piece to point out was that the weekly jobless claims was the lowest number seen since 1969. That again points to a strong labor market which likely means a strong employment report when the Bureau of Labor Statistics releases their next jobs report in August. That could hurt mortgage interest rates.

It’s also important to note that just prior to a recession, the labor market is the strongest it has been and then quickly deteriorates. I’m not sure how much better things can get. I do see the labor market getting a little stronger and then falling sharply.  But we have some time before that will happen.

Unless bonds can break above their 100-day moving average, we will maintain our locking bias.