Mortgage Bond Market Analysis - Great Employment Report Edition

Good morning and TGIF.   Anytime an economic report is coming out that might adversely impact the benchmark mortgage bond, I always recommend locking in advance of the release.  Typically the data points that have the biggest impact on bond prices / rates are employment-oriented reports like the weekly jobless claims numbers that are released every Thursday and the monthly employment reports that are released on the first Friday of every month.  Well today is the first Friday and the non-farm payrolls came in at 321K vs. expectations of 232K and previous of 243K.  This is a huge beatdown and in a normal month, the sell-off in the bond market would likely be much worse.

December's not a normal month.  Bond traders understand that these numbers aren't real and probably won't be until February's employment report because there are a whole lot of seasonal workers that are figured into these numbers and most of them will probably not keep their jobs beyond the holiday season.  Additionally, an hour and a half after the employment data was released, we got the factory orders which came in much lower than expected at -.7 vs. expectations of +.1 and previous of +.5.  In reality, we have a mixed bag of data and a sell-off that equates to the benchmark bond now down 28 basis points.  Here's the chart:

Should I lock?  That's always the million dollar question and no one has a crystal ball but from the charts we can see a couple of things:  1) the trend for today looks to be down (top right - "Daily Chart") and 2) the low for the day approached the first level of support and bounced off so it's very possible that we finish the day somewhere between where we are now and 103.61 which is the support level.  If the traders decide to sell with a little more enthusiasm, the 2nd level of support at 103.52 could be tested.  I think the weak data on factory orders will temper the selling.  Additionally, there is no real data until next Thursday.  There is a bond auction on Wednesday that could impact pricing / rates but it could be quiet until then so you may be o.k. to float.  That said, rates are still fantastic and locking now wouldn't be a bad thing.

As always, please feel free to share your thoughts in the comments section and subscribe to my blog so you don't miss any of the reports.  Don't hesitate to call me if I can help you with anything mortgage-related even if I'm not handling the loan - 702-812-1214.  I hope you have some fun stuff planned for your weekend.  Make it a great one.