We will continue our locking bias

Investors betting that the Federal Reserve will accelerate its timetable and increase short term interest rates sooner than expected may have to rethink their strategy after today’s surprisingly low report from the Bureau of Labor Statistics’ highly anticipated Jobs Report was released this morning.  While the market was expecting north of 220,000 new jobs created, it was announced that only 143,000 new jobs were created in the month of August.  This is a significant drop from the recent trend of 200,000+ new jobs each month, and a sign that our labor growth may be stalling as we enter the slower winter hiring months.

Although many pundits believe this was a once over blip in hiring, a closer look at the report shows that of the jobs that were created, full time jobs outpaced part time jobs by a 4-1 margin.  Many of the job gains in the early summer months were part time student type jobs that that market should have anticipated would come to an end when school got back in session.  We have been talking about this for weeks, and feel the markets should have anticipated this report.  This is further supported by the unemployment rate dropping form 6.2% down to 6.1%, primary led by fewer teenagers looking for work.

After falling below support, mortgage bonds are back within the range they have been trading for the past couple of weeks.  This is a positive sign, and with the support of today’s weak job growth figure bonds now can challenge the highs of the past 14 months.  Unless we see a strong indication that mortgage bonds can break above support, we are going to maintain our locking bias.  Looking back at the charts it’s clear that bonds have faced significant resistance each time they have approached this level since June of 2013.  Although there is hope for a break above support, it may take a fall in the stock market, or a negative geo-political event to give mortgage bonds the strength to break through.