Mortgage Bond Market Analysis - Anomaly Friday

What's going on in the market is a bit weird and I would describe it as an anomaly and it's not just one weird thing today, it's two.  First off, usually when the stock market goes up, the bond market goes down because money usually flows from one into the other.  For instance, if the stock market looks attractive like there are some buying opportunities, investors will sell bonds (driving prices down) and buy stocks (driving prices up) and vice versa.  Secondly, when good news, REALLY good news comes out regarding the economy, bonds almost always sell off.  None of this is happening this morning - at least for the most part.

We got really good news on the employment front and there was a bit of a sell-off.  Here's how this morning's FNMA benchmark bond pricing has gone:  Just after trading started the bond was at 102.07.  Within 30 minutes it was up to 102.5 - a 43 basis point swing.  Then the news hit that non-farm payrolls came in at 252K vs. estimates of 240K and November's numbers were adjusted up significantly to 353K.  Additionally, the unemployment rate which was estimated to go down to 5.7 from 5.8% came in at 5.6%.  Great numbers like this would typically trigger a big sell-off, and it did.  Over the next 15 minutes the FNMA benchmark bond sold off 38 basis points and another 12 basis points (50 bps total) over the next 50 minutes.  It's what happened after that that is interesting:  it rebounded in the face of this strong economic data and went back up 38 basis points over the next hour and ten minutes and has since retreated a bit.  Wholesale inventories were just released and they came in at .8 vs. expectations of .3 and previous of .4.  While this would normally have a negative impact on bond pricing, the trend continues to be bucked as the benchmark bond has clawed it's way back up to 102.37 - up 28 basis points on the day. 

I think that once investors had the opportunity to digest the data, they remembered that these include the holiday hires and we won't have true numbers until February.  They probably also remembered that the price of oil is very low (relatively speaking) and that the European economy is on life support - literally.  Mortgage bonds are definitely a great safe haven at the moment.  Here is a look at the chart as of about 7:30 PST:  

Should I lock?  This is always a great question and the simple answer is that rates are great and you really can't go wrong if you lock now.  From a technical perspective, the benchmark bond (FNMA) is overbought which means investors could decide to sell off and take some profits.  With an increasing amount of good economic news, there is also a better likelihood of bond prices moving lower which will drive rates higher.  That said, there are offsets like low oil prices and a crappy European economy.  If you have a loan closing in the next 15 days, I would lock, otherwise, it's probably o.k. to float.

What's on the Docket for Monday?  There is NO economic news scheduled for release on Monday which means the market will trade on today's news and try to anticipate what will happen later in the week.  Tuesday doesn't have much data being released but we see a bit of news coming out on Wednesday and a number of items on Thursday.  I can be reached at 702-812-1214 if I can help you with anything mortgage-related.  Make it a great day.