Mortgage bonds continue to be held back

This morning’s ADP employment report for the month of August showed that job gains were stronger than the 185,000 anticipated.  ADP reported that 237,000 new jobs were created in August, along with an upward revision to July’s original number of 178,000 up to 201,000.  A deeper look into the August report shows that the service sector continues to account for most of new jobs created within the US economy.  Overall, this is a strong report and now sets the stage for a potentially stronger reading when the Bureau of Labor Statistics (BLS) report on August job gains is released on Friday.  With the BLS report considered to be the more important of the two, it will be interesting to see if this shows stronger than expected growth as well.

A second look at 2^nd quarter Gross Domestic Product (GDP) came in showing a 3.0% rate of growth.  This is higher than the market’s expectations of 2.7%, and a nice improvement from the original 2.6% rate reported.  Given that GDP is one of the two most important influences over mortgage interest rates, this is not a good sign for the mortgage market.  If this rate continues to climb higher, it will increase the upward pressure on mortgage rates. 

Mortgage bonds continue to be held back by multi-month highs.  Unless bonds can break above this critical level, we will maintain our locking bias.