February 5th, 2010 5:08 PM by Mel Samick
Friday's bond market has opened fairly flat following this morning's release of January's employment figures. The stock markets are also relatively flat considering the past couple of days with the Dow down 11 points and the Nasdaq up 6 points. The markets ended the day up 10 and 15 respectively, the bond market is currently up 12/32, which will likely improve this morning's mortgage rates.The Labor Department gave us today's major news. The monthly Employment report is arguably the most important report we see each month. Ironically, the market reaction has been little, especially when yesterday's usually irrelevant weekly unemployment report helped fuel a major stock sell-off and nice bond rally. It is supposed to be the other way around- monthly report causes significant volatility while the weekly report is a non-factor.Today's release actually gave us mixed results. The headline number was the 9.7% unemployment rate that was well below the 10.0% that was expected. But offsetting that negative news for bonds was the loss of 20,000 jobs when new payrolls were expected to be up 15,000. Also favorable to bonds was a sizable downward revision to December's payroll numbers. It was previously announced last month that 85,000 jobs were lost during December, but today's release revised that loss to 150,000. This means that more jobs were lost during the past two months than many had thought. The end result is a fairly calm day in the markets, at least so far. It appears that traders are content and sticking with yesterday's movements. I believe that today's employment report was not as bad as many had thought it would be. Much of yesterday's stock selling and bond buying were a result of fears that today's report was going to point towards a much weaker employment situation. It was not strong enough for the market to take back yester day's changes, but not weak enough to fuel another around of stock selling. In fact, despite all of the volatility this week, mortgage rates have not moved nearly as much as one would think. Therefore, in my opinion this keeps us on the edge of a sizable improvement or loss. I am leaning towards the bond market giving back some of yesterday's gains, which could translate into higher mortgage rates in the immediate future. It may not be today, but my risk versus reward scale is tilted towards the risky side of floating an interest rate over the next couple of days.