Mortgage bonds continue to show resilience despite continued strength in the US stock market. The last month has been an exceptional one for stocks, which generally would create upward pressure to mortgage interest rates. Although rates have moved up slightly, the overall damage has been minimal.
Tomorrow is a big day for mortgage bonds, with the Bureau of Labor Statistics set to announce their estimate of new job creations in the month of November. The market is currently anticipating about 190,000 jobs, which is 71,000 fewer than the month prior. The numbers just prior to the holiday season can be skewed due to seasonal hires that support Christmas sales. Therefore, we could see the actual report come in stronger than expected.
Next week will have an interest rate and policy announcement from the Federal Reserve. We fully anticipate the Fed to raise interest rates for the final time of 2017 at this meeting. Although most believe that is a negative for mortgage interest rates, it can help improve mortgage rates. Since higher Fed rates help curb inflation, that can bring down the yield of longer term bonds. As short-term rates move higher, we could see the yield curve between long and short-term rates flatten. This is generally not a good sign for the US economy, as it is a precursor to a recession when short term rates exceed long term rates.
Bonds have so far held above their 200-day moving average. Although it seems shocking to me, this is a sign of strength. Although we could see bonds make another break higher, it is risky to float while near the top of a trading channel. The safe play will continue to be locking. But if you choose to float, do so carefully.