The stock market is again pointed higher this morning, as we watch in amazement as stocks continue to set record highs. mortgage bonds are slightly higher as well, but are currently up against the 25 day moving average, which has been a significant force to push bonds lower each time they have attempted to move above this level. In fact, bonds have not broken above the 25 DMA since they fell below on November 7th.
Today will be a quiet news day as the markets await Friday’s BLM Job’s Report and tomorrow’s ADP Jobs Report. The anticipation of tomorrow is 205,000 new jobs created in the month of December. In addition, tomorrow brings another 10 year treasury note auction, which can hurt or help mortgage bonds, depending upon the strength of buyers in the market.
The Fed will release their notes from their recent meeting in which they decided to begin to taper bond purchases. This will bring insight into the thoughts of the members and the driving forces that caused them to pull the trigger. Speaking of the Fed, Janet Yellen’s confirmation happened as planned yesterday, with her start date set for February 1st. There will also be a rotation in the voting members of the Fed come Feb. 1st. There will be two more dovish members replaced with two more hawkish members. This increases the likelihood that tapering will continue as anticipated.
The year over year home value appreciation report estimated 11.8% from November to November. However, it also showed a flattening over the past couple months. With the headwinds of increasing interest rates and increased lending restrictions, we anticipate only modest appreciation for 2014. In some markets, devaluation may occur.
With mortgage bonds facing a significant level of resistance, we are watching closely to see if bonds can break through. Should the 25 DMA push bonds lower, as has been the case since early November, we will quickly suggest locking. Therefore, we can float for a bit this morning to see what happens. Should the 25 DMA hold, we still suggest locking going in to tomorrow’s ADP employment report.