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Thursday, January 15, 2015

Mortgage Bond Market Analysis - Jobless Claims edition

There's a fair amount of economic data that was released and the results are a mixed bag as far as the mortgage bond market trading is concerned.  I'll start with the good data:  the Producer Price Index (PPI) ex-food and energy as supposed to be somewhere between -.1 and +.2 and it came it at +.3 - this is negative for pricing; the offset to this is that when including the volatile food and ENERGY sectors, it was down -.3 (mostly thanks to tanking oil prices) vs. estimates of -.1 to +.1.  The big negative that was released today came in the form of weekly (weak) jobless claims numbers which checked in at 316K - well above the estimates of 293K.  This is the first time in about three months that it has been above 300K.

In my post yesterday I shared my hunch that the jobless claims number may surprise to the upside (300K+) due to possible layoffs for seasonal employees.  The fact that the number is where it is shows that employment probably isn't as strong as we would like to hope it is and we found out yesterday that consumer confidence isn't translating into actual spending - just yet, anyway.  All of this means that investors may continue to prop up bonds which will keep interest rates low.  Of course we are also benefiting from a week economy in Europe and around the globe, extremely low oil prices and stock market analysts hinting at a correction.  Here's the mortgage bond chart:

The RSI is still showing overbought which means the bias hasn't changed and the indicators are calculating the possibility of a sell-off due to the huge run-up.  The first major support level is about 60 basis points below where we sit right now which is a significant drop should the investors decide to take some profits.  If enough investors sell off big, the smaller investors follow which could really drive prices down and interest rates up but with everything going on in the economic universe, we may be safe for a little while with only minor (relatively speaking) fluctuations.  Even a big drop would still allow borrowers to lock in great rates; that said, why not take advantage of where we are at and lock now?

On the schedule for tomorrow we have Consumer Price Index, Industrial Production, Capacity Utilization, and the most popular consumer sentiment index - the University of Michigan's.  I don't anticipate any of these data points surprising big or impacting the market in a big way so if you want to float, I'd do so with caution and be ready to lock quickly just in case.

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