Safe play is to lock in here

Stocks are lower so far this morning after showing gains in premarket trading.  Mortgage bonds opened to the downside and have yet to recover.  The markets are now waiting to see if the 10 Year Treasury Note yield can remain below its 25 day moving average.  If 10-year interest rates don’t step higher, we could see mortgage bonds benefit as a result.  Further, stocks have been capped for the past 10 trading days.  As long as they remain unable to make a break higher, this too will help mortgage bonds improve.  We will have to wait and see as each of the two markets help set the course for mortgage interest rates in the near term.

Today is a slow release day for economic news.  However, things heat up as the week continues.  It’s Jobs Week, which will kick off on Wednesday when ADP will release their estimate for new job gains in the month of July.  This will be followed by the Bureau of Labor Statistics report on the job market on Friday.  Current estimates are set at 165,000 and 185,000 in each report respectively.  Following June’s BLS blockbuster reading of 287,000 new hires in the month of June, this month’s release will be critical to the bond markets.  If we have another strong month of employment growth, interest rates will suffer.  However, a weak report could help push stocks lower and improve interest rates.  You can be certain that the Fed will be watching intently, as will the major financial traders. 

Mortgage bonds are now in the middle of a wide sideways trading range, and could therefore be subject to large swings.  There is a great deal of room for bonds to move in either direction.  As for today, trading is driving prices lower and the APR of mortgage interest rates higher.  Therefore, the safe play will be to lock.