Risk to float is just too high

Mortgage bonds are once again attempting to make a break above the Fibonacci level that they have been beneath since the end of February.  A break above this level will be a significant move that will help reduce the APR on mortgage loans.  In fact, there is about 90 basis points between this level and then next ceiling of resistance, meaning bonds would have an easier time continuing their move higher once they are able to make a break above this Fibonacci level.  A 90 basis point improvement in the bond market would nearly match the lows mortgage interest rates have been at in the past two years.  Hopefully, we will be in that position soon.

With tomorrow’s highly anticipated Bureau of Labor Statistics (BLS) Jobs Report for the month of March just around the corner, traders will be hesitant to pressure prices too much higher today.  Therefore, we can expect an increase in volatility throughout the day today.  If by chance bonds are pressured higher today, the improved impact to the APR on mortgage loans will be short lived unless tomorrow’s report comes in near or below the market’s estimates.  At the moment, most traders are anticipating about 200,000 new jobs to be reported, and for the Unemployment Rate to remain constant at 4.9%. 

Making a lock or float recommendation ahead of a BLS Jobs Report is a difficult challenge.  We feel there is a strong likelihood that the actual number will come in near estimates, so we don’t anticipate a significant adverse move to the APR of mortgage interest rates.  With that being said, however, the risk of floating is high.  If you choose to float, watch the market closely and be prepared to pull the trigger if bond prices make a strong move to the downside.