Stay on guard and be ready to lock

After opening up to the downside, mortgage bonds are now enjoying a nice little rally higher.  The reversal in direction happened after the ISM Manufacturing Index came in much lower than anticipated.  This also turned stocks from positive to where they are now significantly lower.  From a technical standpoint, mortgage bonds are above a significant support level, which is very positive for interest rates.

This week will be relatively light on news, with the exception of the ADP Employment Report on Wednesday, Jobless Claims reported on Thursday, and the all mighty BLS Jobs Report on Friday.  After last month’s anemic jobs growth figure, this month’s report will be very important in telling whether the last report was a sign of a slowing growth trend or if it was more of a fluke.  The market is anticipating 181k new jobs created, so any figure higher can have a dramatic impact on mortgagerates.

With mortgage bonds continuing their improving path forward, we will suggest a carefully floating stance.  However, any time we are at the top of a trading channel, which we currently are, the risk of mortgage rates moving higher increases.  Therefore, stay on guard and be ready to lock should the market show signs of weakening.