Friday 03-07-2014 Mortgage Market Daily Report

The Labor Department reported this morning that 175,000 Jobs were created last month…slightly higher than the expectations of 163,000.

Mortgage Bonds moved sharply lower on the surprise news and prices are attempting to hold onto to a key technical support level.

Feb employment data at 8:30 sent interest rates higher and stock indexes increasing. The unemployment rate did increase to 6.7% from 6.6% in Jan, it was expected to remain unchanged at 6.6%. Non-farm jobs increased 175K, more than what was expected and Dec and Jan jobs were increased by 25K from originally reported data and private jobs increased 162K. The average hourly earnings leaped to +0.4%, about twice what the monthly increases had been showing for the last eight months. Earlier this week the general consensus for non-farm job growth was an increase of 150K jobs, then the ADP private jobs reported on Wednesday was weaker than expected at +139K against 150K, after that many revised their estimates lower to 149K. As is usual with the monthly employment data, the report was another surprise. The reaction sent the 10 yr to 2.81% (+7 bp from yesterday) and for the first time since Jan 22nd the yield traded above its 20, 40 and 100 day averages. MBs prices at 9:00 down 31 bps points from yesterday’s close.

At 9:30 markets still assessing the better employment report in terms of jobs and essentially ignoring that the unemployment rate increased. The DJIA opened +60, NASDAQ +18, S&P +7; 10 yr at 2.81% +7 bp and 30 yr MBS price

The take away from the better jobs report, at least at the moment, is that the weather didn’t have as much of a negative impact than what had been expected. Weather though still had a negative impact on the economy; that jobs were better is suggesting that once weather is more moderate job growth will increase. BLS reported 6.855 mil workers were working less hours due to bad weather. The Jan jobs data was revised higher, another negative for interest rates as Jan was extremely nasty. Uncertainty about the strength of the economy is still on the front burner; the monthly employment data recently has led to wide swings in the 10 yr rate and MBS prices. Yields on 10-year notes dropped two basis points on Feb. 7 after the BLS issued its January employment report, and tumbled 11 basis points in rate after the Jan. 10 release of December’s report, both of which came in below forecast. The yields climbed 15 basis points on Nov. 8 after data showed October payrolls increased by 204,000 jobs, compared with the gain of 120,000 forecast by economists in a Bloomberg survey.

After an initial strong reaction to the better jobs, as the morning progresses the stock indexes are slipping from the early highs; at 10:00 after being up 18 points on the open the NASDAQ traded lower on the day. The 10 is off its highest level and MBS prices have improved somewhat from levels we marked at 9:30.

The remainder of the day will be interesting; presently markets are still touchy as traders and investors assess the implications of a better employment situation. The 10 traded to 2.81% and for the first time in six weeks has broken key technicals that had held any selling until this morning. At 10:00 the note at 2.79% while the key stock indexes traded lower than at the open. A close over 2.77% on the 10 will definitely change the technicals from slightly bullish to a bearish outlook. Expect continued volatility through the rest of the day.

After a locking bias headed into the Jobs Report, I am recommending floating on any new transactions, as Mortgage Bond prices seem to bottoming out at current levels.

Have a great weekend!