Mortgage Backed Securities have enjoyed a slight run over the last couple of days, currently trading just above its ceiling of resistance. Thus far this morning, the mortgage bond market is up again on the heals of some bond friendly economic reports.
Taking the headlines today was the release of the Non-Farm Payroll report, which came in much worse than expectations with a decline of -467,000 versus estimates of -363,000. This has driven the unemployment rate to a 26 year high at 9.5%, but that was slightly better than the 9.6% economists had predicted. Still, most believe the rate will jump over 10% before getting better, and if you really look at the numbers that include those who have settled for part time employment, that number is much worse. Also, the average work week has dropped to 33 hours as employers have turned to cost cutting measures to ensure their own survival.
Factory Orders just came in showing a jump in May. Total orders rose by 1.2%, which is much better than the consensus estimate of 0.8%. This further supports the feeling that we are starting to see a bottom to the current recession, and it has also helped to keep a lid on any real significant gains in the bond market.
Currently, Mortgage Backed Securities are up 15 bps this morning. With bonds sitting right above the top of their trading channel, there is a good potential for them to retreat lower. For now we are cautiously floating, but we will be watching the charts closely to ensure that we protect the gains in pricing we have received recently. We will let you know if anything changes.
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