Strong Jobs Push Taper

In the last week, the conversation surrounding the tapering of Mortgage Backed Securities has rapidly increased. Some dovish Fed members are pushing for stimulus tapering sooner than the originally planned 2022/2023 and are using strong jobs statistics as the basis for why the US economy is becoming more and more self-sufficient.

However, statics are the darndest things and can be manipulated in any which way. The jobs report that came out 2 weeks ago that ignited the fall in the mortgage bond market showed a strong 943k job creations. At a closer look you will find that of the 943k, 221k were teaches returning to work after the Summer break. On the same hand, the MBS market fell when the most recent unemployment report came out showing 8.7m unemployed people making a 5.4% unemployment rate. Well, if you add back people currently working part time who want to be working full time and unemployed people who have been looking for a job for at least four weeks, the ‘unemployment’ number is closer to 20m. There are currently 10m job opening. Meaning once all covid unemployment benefits are cut, we could potentially see 20m people looking to fill 10m jobs.

The Rates:

Mortgage Backed Securities are up 9 bps today after a terrible week and a half. They have climbed above their 50 dma but are now sitting below their 50% Fibonacci retracement line. Remember, that line is a 50% recovery from the highest point the MBS market was at during last years peak. We are holding locking bias incase they bounce off that line.