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Thursday, December 31, 2015

Mortgage Bond Market Analysis - Jobless Claims Thursday, New Years Eve Edition

The major holidays are almost over and we'll soon be back to our normal schedules but for now, we have the last of 2015's economic data and it's mixed (go figure) and mostly weak.  In my last post I wrote last weak I think I mentioned that I would be available but probably not writing much.  Here's a quick recap of the week.  Monday was a very quiet day with the FNMA benchmark bond finishing up 8 basis points.  Traders decided to sell on Tuesday with consumer confidence coming in much higher than expected (funny since Initial Jobless Claims were also much higher than expected today).  The bond sold off 26 basis points - not a major move but one of the bigger moves of the last couple of weeks.  Yesterday the bond recovered a bit, closing up 12 basis points with no real impetus for the move but it traded in a tight range all day and has been in a tight range for a while now.  This morning, the only bit of good economic news was the continuing jobless claims that came in lower than expected while initial claims came in 17K higher than expected at 287K.  Another really poor reading for the Chicago Purchasing Manager's Index is helping push the bond higher this morning.  Expectations for the Chicago PMI were 50 (below 50 is retraction, above is growth) and it came in at 42.9.  This is some recovery.

Needless to say, traders are buying bonds on this weak economic data and the FNMA benchmark bond is currently up 27 basis points.  The RSI is just above the mid-point between oversold and overbought so it's a non-factor.  The biggest headwind the bond will face is the 2nd level of resistance which is 103.21 - current price is 103.19, 4 basis points off the morning high.  With an early close to the market today and probably a light staff of traders, my guess is that it closes somewhere around where it's trading right now.  I think it's a good thing to lock now with rates still very good.  We could see some improvement next week with heavier volume returning after the light holiday season.  This would be a continuance of the buying based on the weak data today.  It's important to remember that next week is jobs week with the ADP Private Payroll report being released on Wednesday, Jobless Claims on Thursday and the unemployment rate and non-farm payrolls on Friday.  To be safe, I'd lock before these reports, especially Friday's.  If your lender has a float down option and the data is really bad such that traders buy bonds and push rates lower, you have the best of both worlds:  protection ahead of the reports with the ability to capitalize on them if rates get better.

That's all for this year.  I hope 2015 was a great year for you and that 2016 will be even better.  I'm always available to help in anyway I can and I would really love to earn your business.  Have a very happy and safe New Year.  

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