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Friday, January 8, 2016

Mortgage Bond Market Analysis - Anomaly Friday

The mortgage bond market has every reason to sell off this morning but it's not doing it.  We are seeing a major anomaly this morning consider the fact that the Non-Farm Payroll numbers CRUSHED expectations coming in at 292K (which is a very strong number) vs. estimates of 200K.  November's numbers were revised from 211K to 252K - another strong reading.  Both of these are very negative for bond pricing.  The next part of the anomaly comes from the RSI being overbought, just like yesterday.  Finally, the stock market is up a bit - you would expect this after strong economic news like we got this morning not to mention the fact that the recent huge sell-off has provided some nice bargains for investors.

The FNMA benchmark bond has been up as much as 21 basis points on the day and is now only up 7.  Most of the move up happened after the numbers came out so it's not like the numbers caused the sell off like you would think.  To finish out the economic data for today, the unemployment rate came in at 5%, just like expected.  November Wholesale inventories came in at -3% vs. expectations of -.1%; this is a slight positive for pricing.  In addition to the RSI showing that the benchmark bond is overbought, the 2nd level of resistance is very strong at 103.70 since the 100 day moving average is also right around that point as well.  The bond is now only up 4 basis points for the day at 103.70 so it looks like the resistance level is holding strong.

If you didn't lock yesterday heading into todays big numbers, you got a reprieve and I would take advantage of the anomaly we have this morning and lock.  The fact that China's financial markets are in turmoil is probably the only thing that is supporting the current price.  Once that gets back on track, money will flow from the bond markets and back to the equity markets, especially with economic news like this.  In addition to this, remember that I shared Fed President Lacker's quote yesterday that said he thought the Fed should start selling the bonds in their portfolio - you may recall the quantitative easing program where the Fed was buying $45 billion a month in mortgage bonds to keep rates low, well now it's time to start selling them off, at least according to him.

Make it a great day and a better weekend.  I'll be available if you or a client is in need of a pre-approval or just have a general mortgage question - 702-812-1214 or 801-853-8720.

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