01 Dec Safe play is to lock
At this point, it’s no longer serving us to make calls based on support lines. We are in a brutally strong downward channel that seems to blaze past what would have been considered significant floors of support. Given this trend, there is really no way to say for sure when the damage will be over. For now, we will ride the trend lower and look for moments in time when rates happen to be more favorable from one day to the next. Since rates never move in a straight line in any direction, some days will in fact be better than others. On such days, we will advise a short term floating bias. However, for the most part, until this brutal path shows an end, we will suggest locking.
Tomorrow’s highly anticipated Bureau of Labor Statistics Jobs Report will report on the number of jobs created in the month of November. Given the strength of the ADP report, we can anticipate a decent number. Although the markets’ reactions are impossible to predict each time, there are reasons to believe that the bond market could react favorable to either a good or bad report. The bond market tends to fall when stocks are performing well. The US stock market has had an ongoing strength that at some point will have at least a temporary pull back. A strong report could cause the Fed to be even more aggressive in their rate hikes, which would create a headwind for the stock market. If that happens, bonds could benefit. Further, a low report tomorrow could also provide an opportunity for stock investors to want to reduce their exposure and cash in some of their profits. That again could help improve rates. Either way, watch the markets closely. They will likely be more volatile ahead of the release.
Although we are once again hopeful that bonds will find a floor soon, we have learned from recent experience that a floor has not been established. Considering that, we will maintain the safe play of a locking bias.