Mortgage Bond Market Analysis - Jobless Claims Thursday

Happy Jobless Claims Thursday.  The data came in a bit worse than expected this morning.  We've got a number of things in play this morning regarding the mortgage bond market.  First of all, the extreme weakness in the stock market since the beginning of the year (Monday) has provided support for the bond market.  Initial Jobless claims came in slightly higher than the expected 275K at 277K while Continuing Claims came in 30K higher than expected at 2,223K.  While this is a slight positive for bonds which were up a bit this morning, traders have decided to sell off and take a bit of profit after a 34 basis point increase yesterday and a 5 day winning streak which got us back to our December 3rd pricing.  The RSI (Relative Strength Index) is well above the overbought threshold which is a technical indicator that would give traders reason to sell.  

With the uncertainty in China's financial market and the loss of wealth that it has brought, we could see some impact in our economy; it is certainly influencing the start to our year for the stock markets.  To further convolute thoughts on what's happening in the financial markets and what we should do (lock / float, buy / sell), Fed President Jeffery Lacker (a hawk) said some interesting things at a speech to a business group in Raleigh, North Carolina this morning.  On one hand, he said that when oil prices bottom out and the dollar reaches its peak, the Fed may need to raise rates more than the expected 4 times this year if inflation rapidly increases toward the Fed's 2% target.  Lacker believes that we will see strong consumer spending this year; I'm not so sure.  There is lots of mixed data that makes it too nebulous to call.  On the one hand, we haven't seen a lot in terms of consumer spending; most of the reports are missing the mark.  On the other hand, consumer confidence is high (if not backed up by the opening of the consumers' collective wallet) and the ISM non-manufacturing index has been strong which could lead to more service sector jobs which increases employment and hopefully spending on things other than core products like food and fuel.  Here's an interesting quote from this morning's speech: Lacker, who had pressed his Fed colleagues for a rate hike for much of 2015 when he had a vote on policy, expects strong consumer spending to drive the U.S. economy this year. He also said he would like the Fed to start whittling down its massive balance sheet of bond holdings "sooner than later."

Especially interesting is the last part of that quote where he says he would like to see the Fed whittle down its bond holdings.  This means he wants them to start selling the bonds in the secondary market which would put downward pressure on price and upward pressure on interest rates.  This is one more reason that you or your homebuying clients should buy sooner rather than later; as you know, higher interest rates erode homebuying power.

The FNMA benchmark bond is down 9 basis points to 103.57.  I would lock today in advance of the NFP (Non-farms Payroll report) and the unemployment numbers tomorrow just to be safe.  As always, I'm here to help in any way with anything mortgage related.  Please contact me at 702-812-1214 or 801-853-8720 or at jed.wunderli@noblehomeloans.com.  Make it a great day.