Happy Hump day. Don't be too surprised but we have some mixed data today. January Private Payrolls came in at 205K vs. estimates of 195K - negative for rates. Additionally, December's number was revised up to 267K from 257K - also negative for rates. The January Non-manufacturing Index (service sector) came in at 53.5 vs. estimates of 55.1 - lower than estimates but still expansionary as it's above the critical 50 threshold. December's number was revised up from 55.3 to 55.8. The fact that the number was lower than last month's (somewhat considerably) and it missed the estimate is positive for pricing but since it was still solidly above the 50 threshold, traders may not be in too much of a buying mood considering that the service sector is about 80% of our economy and this reading is still good news.
On Monday, I recommended locking before today. We had a nice move up yesterday with the FNMA benchmark bond up 30 basis points, closing at 104.88. With such a high price, this morning the benchmark bond was changed to the FNMA 3.0 vs. the 3.5 which it has been for quite some time. The new benchmark bond is up 3 basis points on the day but has capitulated throughout the morning, starting off down, then moving considerably higher and is now back to slightly up for the day. It is currently 9 basis points above the 1st level of resistance and 13 points below the 2nd level. The RSI is also overbought. I believe there are two things continuing to drive the upward movement in bonds: 1) low oil prices and 2) the belief that the Fed may not raise rates as quickly as they said in their December meeting; the market seems to be pricing in no more rate increases this year which is a 180 degree turn-about from December when the Fed was talking about an increase in 2016 of as much as 1.375%. There's not a lot of data tomorrow that's likely to move the market - Jobless Claims haven't been that impactful lately and the other data points aren't rate drivers. Friday will have some important stuff to watch out for. Like on Monday, I think it's o.k. to float but I'm not sure there much upside to be had so locking now allows you to take advantage of great rates and protect yourself against a sell-off in case Friday's numbers are better than expect or oil moves higher.
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