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Thursday, November 5, 2015

Mortgage Bond Market Analysis - Jobless Claims Thursday

Will the Fed raise the Funds rate in December or won't they - that is the question.  I'm sure there are lots of other questions that may be more interesting to you regarding sports, movies, or other aspects of your life but if you are in the process of getting a mortgage and you are wondering when to lock, the real answer was last Tuesday.  Wednesday and Thursday saw a combined drop of 74 basis points of the FNMA benchmark bond and it's being followed up by a 34 basis point drop over the last two days.  The reason is because there is so much speculation as to whether the Fed will raise the Fed Funds rate in December or wait until the 1st or 2nd FOMC meeting of 2016.  On the one hand, the last two meetings saw votes of 9-1 in favor of keeping rates the same.  If you read my blog with any regularity you know that we've had lots of mixed data with no real definitive positive direction for the economy.

Yesterday we got more data that is showing signs of a recovery with the ISM non-manufacturing index (service sector) coming in with a very strong reading of 59.1 vs. estimates of 56.5 - the service sector is about 2/3rds of our economy so this is big and the bond, which was up a bit before this data, retreated and closed down 16 basis points.  This morning we got three pieces of data that should, at the very least, provide support for the current bond price:  Initial Jobless Claims came in at 276K vs. estimates of 262K, 3rd quarter Unit Labor Costs came in much lower than the expected 2.2% at 1.4% and Non-farm Productivity was up 1.6% vs. estimates of .1%.  These last two readings are positive for keeping inflation in check but these alone are not enough to get the bonds to rally and help rates to move down.  The 10 year Treasury is on an upward trajectory and it's bringing mortgage bonds with it.  It's becoming more clear that an increasing number of bond traders think the Fed will begin raising rates in December.  If that does happen, the next big question will be by how much - .125% - .25% (a more normal move for the Fed) have both been talked about.

From a technical standpoint, the benchmark bond is at 103.63, 3 basis points below the 1st level of resistance / 100 day moving average.  The bond is not below all of our moving averages and the 1st support level is 103.28 - 35 basis points below where it is now.  While the RSI is indicating an oversold level, bond traders are probably more focused on the long bonds (10 year treasury) where the bet is for a rate hike in December.  But for some supportive data today, we may be seeing more selling on the way down to the next support level.  Like I said in my post on Tuesday, there is much more risk to the downside than there is potential for upside movement.  I would lock and play it safe.  If you are working with a lender that allows for float-downs, you might be able to take advantage of that but don't count on it.  Contact me if I can help with a pre-approval or anything else mortgage-related:  702-812-1214 or 801-853-8720.  Make it a great day.

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