Mortgage bonds opened higher Thursday adding to the gains seen Wednesday afternoon. Rates are finding support from global weakness in the equity markets.
In news released this morning, Q4 productivity fell 0.4%, sharply lower than expectation for an increase 1.5%. Previously productivity rose 3.4%, leaving traders wondering how accurate the decline seen today really is. Also, unit labor costs spiked 5.7% vs. the expected 3.4% increase.
Traders are now waiting for stocks to begin trade at 9:30 am ET and for the release of factory orders data set for 10:00 am ET.
Next week the Treasury is set to auction 3, 10 and 30-year bonds. They will announce the size of the auctions today. The additional supply, especially on the long end of the yield curve may make it a difficult week for mortgage rates. Treasury debt competes with mortgage-backed securities for available funds. Globally governments are issuing record debt to raise cash for the bailouts. One concern among traders is the amount of debt may overwhelm available investment dollars causing rates to spike to attract buyers. The more debt that gets issued both here and abroad makes this more likely. The auctions occur next Tuesday, Wednesday and Thursday.
Tomorrow brings the monthly employment report. It is without a doubt the 800-pound gorilla of all economic data. Traders will begin prepare for the release later this afternoon which may cause some volatility. Current expectations are for the unemployment rate to stand at 7.9% and non-farm payrolls to shed 650,000 jobs.
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Thank you for your remarks. I will review your submission and post it accordingly. Dave.