The Fed Giveth and Take Back

Mortgage bonds experienced a huge lift after the Federal Reserve announced following the conclusion of yesterday’s FOMC meeting that rates would remain stable and that they would increase their purchases of 10-Year Treasury Notes.  Further, they stated that the lack of consumer inflation was concerning, which seemed to have temporarily set the stage for a rate reduction at some point in 2019.  However, in the press conference that followed, Fed Chairman Jerome Powell provided evidence of inflation through other less-known readings, which then caused the bond market to give up all the gains they experienced immediately after the meeting.  So, needless to say, mortgage bonds are back beneath their 25 day moving average once again.

The sell-off in the bond market that started yesterday afternoon has had some follow through in early morning trading.  Much of this can be attributed to investors taking a safe position in advance of tomorrow morning’s Bureau of Labor Statistic (BLS) report, which will estimate the number of new job gains in the month of April.  While the market is expecting to see a number in the 180,000 range, there are whispers of concerns of a much stronger number on its way.  Given the lack of Weekly Unemployment Claims on the “sample week” that makes up a part of the equation, combined with the strong ADP payroll report, some investors are taking chips off the table.  Once we see the actual number, we will have a better idea of where rates will head in the near term.

Given the risk associated with tomorrow’s BLS report, locking is the safe play.