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Tuesday, November 4, 2014

Mortgage Bond Market Analysis - Election Day Edition

It's election day and that means one thing - another edition of my mortgage bond market analysis.  As I write this, the benchmark bond is up 5 basis points after closing down 12 basis points yesterday.  It has retreated 51 basis points since the close on October 15th - again this has been a very slow decline and the benchmark bond is oversold.

Tomorrow we will start to see the tip of the iceberg with the typically inaccurate ADP private payrolls.  We follow that up with the jobless claims numbers on Thursday and then the monthly non-farm payroll / employment report.  This report may be the beginning of including some seasonal workers so it may not be as accurate as we would like.  If numbers come in higher than 231 there could be some sell-off pushing rates higher.  If the numbers really surprise and are higher than last months 248, the sell-off could be substantial - at least relatively speaking.  With the small movements that we've had, I think the bond market is looking for some direction; it's hard to believe that it's oversold (even though it technically is) having only gone down 51 basis points over the last 14 trading sessions (including today) which is just 4 basis points per day.  Here's the chart:

I would contemplate locking before the end of today if you are ultraconservative and are afraid of what might happen to rates depending on what happens in the elections.  If you are moderately conservative, I'd at least lock before Thursday's jobless claims numbers.  If you are neutral then you may want to lock by Thursday's close to be ahead of Friday's employment numbers which come out early.  If you like to live on the edge, lock after the employment numbers are released.  I wish I had a crystal ball but that's as good as it gets - remember that the market is oversold so there could be a desire for investors to buy.  That said, there could be nothing but good news economically which would be bad for rates.  It's always your call.

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