Despite Stronger Than Expected Jobs Report, MBS Unchanged (commentary)

Jobless Claims were 29k shy of expectations for March.  The Consensus was 386k.  Actual was 357k.  This data, in and of itself, would normally be damaging to the bond market, but this number is not the whole story.  Even though it was a better than expected reading, the moving average (which is considered a more accurate barometer) remained at its lowest point in over two years. 

In addition, the markets have other data to consider that is potentially helping the bond market stay afloat this morning.  We are entering "earnings season" where many corporations announce their earnings (go figure).  So far, as might be expected, a greater majority have reported weak numbers, and in some cases very weak.  This is definitely a drag on the stock market.  

Also reported today, the trade deficit widened to 62.3 billion, up from an expected 57.5 billion.  This is a mixed bag as far as the bond market.  On one hand, a widening deficit is a weak indicator for the economy in general which can be good for the bond market.  On the other hand, with a weak dollar, a gross predisposition towards imports can increase inflationary pressures which is not so good for the bond market.  As such, it's tough to read this report's impact on MBS.  Likely, the stock market's lackluster reaction to a glimmer of hope after the jobs report combined with dismal retailer stock earnings is the bigger impetus for bonds to be hanging on this morning.

There is not much data scheduled to release the rest of today.  We do have a TIPS auction later today (inflation adjusted treasuries), but it will likely have no impact on trading unless demand is either extremely low.  

So what to do?  If you can keep a diligent eye on the markets today, floating can pay off.  However, we've had a stable MBS market as of yesterday afternoon, so much of the price improvements will have made it into this morning's rate sheets.  At the very least, you won't be hit with the hedging penalty (lender's tendency to wait for the MBS prices to hold gains before repricing for the better) if you decide to lock this morning.  From one point of view, we are embarking on the mountain-climb leading to a price of 102-00 on the 5.5% coupon.  The last time we did that, we slipped and fell rather precipitously.  So with that risk-aversion in mind, locking can make sense.

If, on the other hand, you think "now is the time that the economy will finally realize how weak it is," then floating may be a risk worth taking.  After several days of gaining and/or holding steady, I'm feeling something in the air that says we may get stonewalled today.  Even so, cautiously floating is acceptable, and perhaps even advised, providing you can keep an eye on stocks, bonds, and of course, stay tuned here.  Stocks and bonds are not a surefire indication of market movements, but in the absence of MBS specific headlines, they can be an indicator (huge stock rally = MBS could reprice for the worse, although there are exceptions to that general rule).

At any rate (pun intended), I'll notify you of any major swings or news as soon as they happen.  We're getting into pretty high territory with respect to MBS price.  So be ready to lock immediately.