Mortgage Bond Market Analysis - TGIF

It's Friday and we've got data and some movement in the market.  Three data points were released today with the Employment Cost Index coming in at .2 vs. expectations of .5 and previous of .7 - this shows that costs are contained, at least for this month, on the employment side which is good for inflation and may be a piece of the puzzle that causes Fed increases in the Fed Funds rate to be delayed.  The Michigan Consumer Sentiment Index came in at 93.1 vs. expectations of 94.  This is still a strong reading but it is also down slightly from the previous reading of 93.3.  This will also add a bit to the impetus for traders to buy (good for interest rates).  The bad news is that the Chicago Purchasing Manager's Index came in well above expectations at 54.7 vs. expectations of 50.5 and previous of 49.4 (anything over 50 is expansionary and means growth).

The most prevalent of the three data points is the Chicago PMI which should have caused the bond market to do an about face but apparently the traders thought enough of the other two data points along with the other things (China and Greece) and anything else to keep buying.  The RSI is well overbought and the FNMA benchmark bond is up 28 basis points on the day at 103.7.  This is 11 basis points off its morning high but 8 basis points above the 2nd level of resistance.  Over the last 14 business / trading days, the benchmark bond has increased 136 basis points to its current level which is an improvement of almost .375% in interest rate.  If it were me, I would lock now and take advantage of this great improvement.

Four pieces of data will be released on Monday - some not too important as far as mortgage rates are concerned.  There is data throughout the week and it's JOBS week which means ADP Private Payrolls on Wednesday, Jobless Claims on Thursday and Non-Farm payrolls and unemployment rate on Friday.  There is the potential for increased volatility.  If you decide you want to roll the dice and float, keep an eagle eye on the market because with the data we are getting next week, things could change for the worse in a hurry.  Make it a great day and a better weekend.