Good Thursday AM,

Bonds are having a rough morning and for very good reason! The economic reports that were released this morning were very unfriendly to bonds. The ADP jobs report came in far better than expected, leading many bond traders to fear that tomorrow’s non-farm payroll number (markets expecting 650k new jobs) will also be better than expected. Also, jobless claims and ISM services index also beat expectations. The 10-yr yield as well as Mortgage Bonds are sliding and I would be careful floating the rest of the day, let alone into tomorrow.  If we do not see some rebound in the next hour or two, I expect we will see price changes for the worse just as a buffer against tomorrow’s jobs report. I would not suggest floating not the report for anything closing in June. The risk reward is not in our favor. A strong report could easily impact pricing by 50bps or more. A weak report likely only gives us 15 basis points on the up side as the Fed continues to talk about talking about when to taper (the Fed did confirm it will taper its purchase of corporate debt and ETF by year end. That will drive these rates up and… to compete with those/rising yields paid to investors, it would only make sense that other bond rates/yields would have to tick up as well).

Locking and floating decisions aren’t about knowing what is going to happen, it’s about assessing risk.

Please remain safe and healthy and have a great day!