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Friday, March 4, 2016

Mortgage Bond Market Analysis - It's Friday and it's the last of the Jobs data

Happy Friday!  Lots of data to discuss so let's get started.  Today we got the last of the jobs data with the Non-farm Payrolls coming in much higher than expected at 242K vs. estimates of 190K - in my post on Wednesday, I warned that there was a good likelihood of something like this happening based on the stronger-than-expected ADP Private Payroll numbers.  December and January's NFP numbers were revised upward 30K as well.  All of this is negative for bond pricing.  The Unemployment rate remained unchanged at 4.9% as estimated but the average hourly earnings was down at -.1% vs. estimates of +.2%.  The Labor Force Participation Rate increased from 62.7% to 62.9% - still not blistering but it is an improvement.  Overall, the strong jobs numbers is negative for bond pricing and the FNMA Benchmark Bond is selling of a bit, currently down 22 basis points at 101.99.  This is 1 basis point below the 1st support level.

On Wednesday I recommended locking before today and yesterday I sent out an alert to lock on my app - buyerZapp (you can download it in the upper right corner of my blog).  Oil and stocks are both up a bit as you would expect with news like this morning's.  Money is flowing the way it should but if you didn't lock Wednesday or at least by yesterday, you are looking at a more precarious market.  The RSI is in between oversold and overbought so that's a non-factor right now (though it is closer to oversold) but with strong jobs data, there is significant headwinds against the bond moving higher.  Conversely, the 1st support level of 102 is being tested right now with the 2nd support level 21 basis points below that should the bond sell off that much.  The 50 day moving average is at 101.5 which would be the next support level.  What this means is that a drop in bond price to the 2nd support level would cost a borrower about $400 in points on a $200,000 loan.  A subsequent drop to the 50 day moving average of 101.5 would cost about another $600 on a $200,000.  The 22 basis point drop today is about a $400 cost.  This adds up quickly.  Since the open on Tuesday morning, the benchmark bond has sold off 56 basis points which is about .125% in rate or just over $1,000 in fee on a $200,000 loan.

The trend for the day looks to be down so if the 1st support level doesn't hold, I anticipate we'll see the bond close down 30+ basis points.  If we are luck, the support level holds and we close right around our current level.  Data is light next week which means the focus will be back to the weakness in China and the price of oil - as oil goes down, it's good for mortgage rates.  If you are really conservative, I would recommend locking in case the bond sells off through the support level.  If you are more of a gambler, float and see what next week brings.  Either way, download my app so that on days when I don't write a post or on days when the market is extremely volatile, you can receive warning alerts to lock so that it doesn't cost you $400 or more.  I'm always happy to help in any way I can so feel free to contact me at 702-812-1214, 801-853-8720 or  Make it a great day and a better weekend.

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