Unpacking the Job Report

The technical move lower is continuing once again today for mortgage bonds. The good news is that there’s significant support just beneath current levels. If stocks don’t make a wild run higher, odds are that the support will help prevent bonds from falling much further. However, if support does give way, bond prices will take a big drop lower before hitting the next floor. Although I don’t expect that to happen, it is certainly a possibility.

As we unpack the data from last Friday’s Bureau of Labor Statistics (BLS) report, there are some signals of concern. First, I’m having a difficult time believing that the job market growth figure was not somehow tied to the federal government shutdown. Although I haven’t heard a single economist mention this, I can only assume that many furloughed federal workers took temporary employment elsewhere in order to put food on their tables when they were not working or getting paid. I will have to see next month’s report to see if the growth was legit or an anomaly. The key indicator that I’m watching out for is the Unemployment Rate. Immediately following the low point in an employment cycle, this rate has spiked significantly higher. Since we know that after hitting 3.8%, there is little room for continued improvement. Further, there is no reason to believe this cycle will be any different from all of those before.

Although I’m hopeful bond prices will hold, the safe play remains to maintain a locking bias.