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Tuesday, December 1, 2015

Mortgage Bond Market Analysis - December 1st Edition

Happy December.  11 Days until my wife's birthday (she'll be 29), 13 days until my daughter's (interestingly enough, she'll be 19 - just 10 years behind my wife), and 24 days until Christmas.  We are also 15 days until the Fed reveals their interest rate decision which many are prognosticating a raise / tightening.  If you read my blog yesterday, or much in the past, you know the first week of the month is Jobs week and the data we get this week will be very telling.  While the vote was 9-1 against tightening the last two Fed meetings, past actions do not guarantee future results.  The Chicago PMI was weak yesterday, below 50.  Today we get the ISM Manufacturing Index which had expectations of 50.3 and it came in at 48.6; this is the 2nd manufacturing number in as many days to come in below 50 which shows retraction.  This is a good argument for the Doves (the Fed voters who are cautious about raising rates).  Conversely, Construction Spending came in at 1.0 vs. estimates of .5.  Of the two numbers, I think the more important one for the Fed is the manufacturing number.

Yesterday the FNMA benchmark bond closed up 19 basis points and after this morning's weak manufacturing data, it is up another 14 basis points.  With two decent gains like this, I would take advantage of it and lock ahead of the employment numbers we will see over the next three days.  In addition to all of the employment numbers, we also get the ISM Non-manufacturing data on Thursday along with the ECB Policy Statement and some comments from Janet Yellen.  One important reminder regarding the employment numbers is that these all include seasonal employment for the holidays and there's no way to know how many of these workers will be able to parlay their temporary employment into permanent jobs.  Contact me if I can help with anything (801-853-8720 or 702-812-1214) and make it a great day.

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