Happy Friday. We've got some important data that was released this morning so let's dive right in and take a look at how it came in. Non-farm Payrolls came in rather light at 151K vs. estimates of 190K and previous of 262K (this was revised down 30K from the initial reading of 30K - how do they get this number wrong? Do companies say "Oops, we decided not to offer these jobs after all?). With a weak number like this, you might expect bonds to be rallying, right? Well somehow the unemployment rate went down from 5.0 to 4.9% but that's not a big deal because traders are smart enough to know that the employment situation isn't nearly as good as that number would have you believe, especially considering the NFP number. They know that the real reason why the unemployment rate dropped is because a number of people dropped out of the work force and "stopped" looking for work and are no longer on the unemployment rolls. I can't wait to see what the Labor Force Participation Rate looks like later this month.
Bonds are down 18 basis points right now after closing down 13 basis points on Wednesday but up 12 yesterday. The reason for the decline is probably due to the increase in the Average Hourly Wage to .5 vs. estimates of .3 and previous of 0. This is likely due to the fact that most of the recent new jobs have come in the 25-54 age range that pays a higher wage relative to those in the 16-19 age range that were the bulk of the creation recently. This wage inflation, like any inflation, scares the bond market and is the likely culprit of the sell-off. The FNMA 3.0 benchmark bond is up 258 basis points from December 30th's open which means rates are better by about .5 - .625%. The chart shows that we are at the top of the range and that we are overbought so there are some technical reasons to look for some profit taking. If oil pushes higher, look for bonds to sell off more but if oil drops, bonds could benefit. Other than that or some global instability, I don't see rates getting any better. Some experts are recommending floating and while it doesn't look like there's much harm in doing that, I'm not sure there's much to gain either. Data next week is light, at least at the beginning, so we may get lucky and see some more buying which would be beneficial for rates. However, considering the fact that we are very near the top of a 1+ month run, I would lock and float down if you get that lucky.
Contact me if I can help with anything mortgage related - I'm available over the weekend if you need a quick pre-approval - 702-812-1214, 801-853-8720 or firstname.lastname@example.org. Make it a great day and a better weekend.
EDIT: Initial Jobless Claims, released yesterday, came in at 285K vs. expectations of 280K and previous of 278K.