Mel's Blog

The Labor Department reported 20,000 jobs lost in April, which was better than market expectations of 75,000 jobs lost, with the unemployment rate falling to 5%.  On the news, Mortgage Bonds quickly fell a whopping 134bp in a matter of minutes.  Yes, 134bp...that's exactly the type of knee-jerk reaction we had anticipated.  But once the details of the report were unpacked, including downward revisions to the last two Jobs Reports, as well as some realization that the economy still lost 20,000 jobs, Mortgage Bonds have staged an enormous recovery.  So...while prices are still negative, they are much improved from the lows after the initial knee-jerk reaction to the Jobs Report headlines.    

As we discussed yesterday, the birth-death ratio is used to help figure the Jobs Report, and in a declining Job Market like the one we have now, the number is likely to be overly optimistic about the actual condition of today's job market.  Therefore we feel strongly that downward revisions are in the cards for the next two months. 

It appears that on short-term transactions, yesterday's Update advice and Alert to Lock may have protected you and your clients, as prices have suffered a bit over the past 24 hours.  But as we also said, "if you have more time and have the stomach for a turbulent period, float carefully as prices should come back".  This morning's sharp rebound higher from the lows leaves the Bond trading above support at the 50 and 100-day Moving Averages.  For now I will Float - but carefully in this volatile environment.