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Monday, May 9, 2016

Mortgage Bond Market Analysis - Monday Morning / No Data Edition

It's Monday and we are off to a positive start in the bond market this morning.  There are a number of things that are in play as far as bond traders are concerned.  First of all, the jobs numbers were disappointing last week for the first time this year.  It shouldn't have really surprised anyone considering the fact that a number of big companies recently announced some pretty hefty layoffs.  Maybe the job market and the economy in general isn't improving as much as we hoped.  The other side of that coin is that some of the recent data has shown signs of inflation - this is the main thing the Fed is looking for and it will give them reason to push for an interest rate increase in June.  A soft job market is good for rates and inflation pressures are bad for rates.

Let's add in the element of oil that looks like it might have topped out.  An increase in production is leading analysts to predict oil to fall back into the mid-30s per barrel - it's currently around $44 per barrel right now.  Falling oil prices are good for rates as well.  Then you have the technical side of bond trading where the RSI is above the overbought threshold (bad for rates) and the current bond price of 102.89 is 16 basis points below the 2nd level of resistance but is there an impetus to prices to go higher with the bond already overbought according to the RSI?

Depending on global economic data and, perhaps more importantly, how a softening jobs market impacts the inflation data (this could take a while to trickle through the system), there may be reason for traders to continue buying bonds but the reason may not be very compelling for the near future due to the time it may take for the jobs data to show up in the inflation data.  At the current price, the FNMA benchmark bond is 9 basis points below the closing price of April 11th which was the high close since February 2, 2015 - over a year ago.

I expect Jobless Claims (Thursday) to be higher this week than it has been in recent weeks.  Friday brings us Retail Sales, U of M Consumer Sentiment Index and the Producer Price Index (the start of the inflation data).  Next Tuesday we get CPI - the Fed will be looking closely at this.  There is a fair amount of other important data coming out next week including Housing Starts and Building Permits in addition to Philly Fed Manufacturing Survey, Leading Economic Indicators and Existing Home Sales and we also get the FOMC Minutes on Wednesday.  I would float for now but I'm not sure I would expect much improvement.  If oil sells off, this could help rates but I'm not sure that any of the data points will help much at least until later next week and maybe not until after that.  There's always the peril of a surprise from global news as well.  If you do float, make sure you keep your phone (and my app - buyerZapp) close so that you can act quickly should the market turn against you and you need to lock.  Make it a great day.

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