Search This Blog

Wednesday, March 30, 2016

Mortgage Bond Market Analysis - ADP Private Payrolls

It's Hump day and the first of the jobs data was released this morning with ADP Private Payrolls coming in stronger than expected at 200K vs. 194K expected.  This is another strong reading which follows last months 205K.  Yesterday, the FNMA benchmark bond closed up 68 basis points but it was only up about 28 basis points or so before Janet Yellen's comments.  The equity and bond markets both liked what she said and the general message was that she is going to be cautious about future interest rate increases.  It's the quantitative easing and the ultra low interest rates that helped the stock market to recover over the last 7 years so naturally, the equity market loved hearing they will continue to get assistance.  The bond market also loved her stance because as long as the Fed Funds rate remains low it means that the economy isn't strong enough for inflation to be any kind of a factor which means interest rates can remain low.

The benchmark bond closed only five basis points off its high yesterday and broke out of the week-long tight trading range in a big way.  However, like I've talked about recently, floating into jobs data can be risky and we saw that this morning with another strong reading for ADP payrolls.  The benchmark bond is currently down 19 basis points which is five basis points off the morning's low.  This afternoon is the 7-year treasury auction and that could impact bond prices.  Tomorrow we get Jobless Claims and Chicago PMI.  The most likely to have any impact on mortgage bonds is the Purchasing Manager's Index.  Friday brings us Non-farm Payrolls and the Unemployment Rate.  So far this year, the Non-farm Payrolls number has moved in lock step with the ADP Private Payrolls data so I would expect a good number on Friday which means our upside for the benchmark bond has likely been reached, at least as far as the next couple of days is concerned.  Locking in the gains from yesterday is a safe bet.

I'll be back with another post on Friday.  If you (or your client) decides to float, make sure you have installed my app - buyerZapp, upper right hand corner of my blog - so that you can stay current with what's happening in the mortgage bond market and get my alerts when the bond market makes a big move in either direction.  Contact me if I can help with anything:  801-853-8720 or 702-812-1214.  Make it a great day.

No comments: