Tuesday’s bond market has opened up sharply following heavy selling in stocks. The major stock indexes are showing another round of sizable losses during early trading, pushing the Dow lower by 260 points and the Nasdaq down 59 points. The bond market is currently up 22/32 (1.87%), but due to weakness late yesterday we should see an improvement in this morning’s mortgage rates of only .125 – .250 of a discount point if comparing to Monday’s morning pricing.
There is nothing of importance scheduled for release today. I would not be surprised to see the bond market give back some of its early gains before the end of the day. The question is whether or not we can remain below 1.89% on the benchmark 10-year Treasury Note yield. Stocks are being influenced by falling oil prices, creating a flight to safety move into bonds. If oil prices stabilize, it is a safe bet to expect stocks to react by recovering losses. That could pull away funds that shifted into bonds, causing bond prices to fall and yields to rise. Since mortgage rates tend to follow bond yields, we would prefer to see weaker oil prices that will keep the stock market in negative territory. But please be careful, as these flight to safety moves usually unwind very quickly.
Tomorrow has only one report that we will be watching. That is January’s ADP Employment report at 8:15 AM ET. This release has the potential to cause some movement in the markets if it shows much stronger or weaker numbers. It tracks changes in private-sector jobs of the company’s clients that use them for payroll processing. While it does draw attention, it is my opinion that it is overrated and also is not a true reflection of the broader employment picture. It also is not accurate in predicting results of the monthly government report that usually follows a couple days later. Still, because we see a reaction to its results, it is included in this week’s calendar. Analysts are expecting to see 190,000 new jobs. Good news would be a much smaller number of jobs.