Stand by and be ready!

Mortgage bonds fell sharply after the BLS (Bureau of Labor Statistics) announced that the US economy added 175,000 jobs in the month of February.  While the market was expecting only 150,000 new job creations, this report did beat expectations but is truly not as great as the media seems to be portraying.  In fact, it is barely enough to keep up with new people entering the workforce, and follows two consecutive months of very low job growth.  Also, the unemployment rate increased from 6.6% up to 6,7%.  This move higher was also unexpected, and is helping to offset some of the impact on the bond market.

Mortgage bonds fell on the news, pushing interest rates higher, while the stock market has been somewhat muted in response.  However, markets seemed to have anticipated a strong report and have already priced in much of the impact before the report was released.  The S&P 500 close at record highs again yesterday, and the bond market has lost nearly 100 basis points this week alone.  This sets up for an interesting week next week, as we will be looking to see if bonds have found their bottom.

We are hopeful that mortgage bonds will stay above their 200 day moving average.  As long as they do, we will recommend a floating stance, as markets will hopefully improve and gain back a bit of the losses already sustained.  Should there be a break below the 200 DMA we will quickly change to a locking stance.  Although we anticipate improvement from these levels, things can certainly change quickly.  A break below would likely come at a cost of nearly .125% to interest rate.  Stand guard and be ready!