Why you shouldn't pay much attention to this week's jobs report

Why you shouldn't pay much attention to this week's jobs report (Part 1 of 7)

Why bonds rallied strongly on a weak jobs report of 74,000 jobs

Why follow this weekly real estate roundup?

The roundup is a weekly series in which we discuss the week’s trading in government bonds and TBA (To-Be-Announced) mortgage-backed securities. We’ll see where mortgage rates have been and we’ll go over the weekly economic data and earnings announcements. Then we’ll look forward to what’s coming up the following week. The information in this series will be relevant to mortgage REITs like American Capital Agency (AGNC), Annaly (NLY), Hatteras (HTS), Capstead (CMO), and MFA Financial (MFA) as well as people who invest in homebuilders.

10 year bond yield - LTEnlarge Graph

Bonds rally as the employment report comes in disappointing

Bonds rallied strongly on the employment report, which showed the economy only created 74,000 jobs in December. The unemployment rate dipped to 6.7%. The Street was at around 200,000 jobs with an unemployment rate at 7%. The labor force participation rate dipped again, showing that November’s increase was probably just a statistical blip.

After starting the week right at the 3% level, bonds stayed within a few basis points of that level and then rallied to close the week yielding 2.86%.

FOMC minutes don’t say anything earth-shattering

We also got the minutes from the December FOMC meeting on Wednesday last week. Nothing surprising was in the report, although the Fed is starting to think about how it will spin the capital losses it expects to experience as interest rates begin to rise. (It will encourage people to look at QE holistically—yes, the Fed may have lost money on its purchases of Treasuries and MBS, but it was stimulating the economy, which led to higher tax revenues than the government would have otherwise had.)

In the next parts of this series, we’ll look at trading in the TBA market (which is the basis for mortgage rates), see where mortgage rates have been for the week, and then discuss past and upcoming economic data.

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