Friday - January 10, 2013, 10:40am ET

Current Trend Direction: Sideways

Float/Lock Bias: Carefully Floating

Current Price of FNMA 4.0% Bond:$103.47, +56bp

Talk about a mixed bag. Just when you thought the jobs market was at a higher stage of improvement, the Labor Department reported that only 74,000 jobs were added in December, well below any expectations and was the smallest increase since January of 2011. PU! This number does stink. But what is adding confusion was a hefty 38,000 upward revision to Novembers number, bringing that to a pretty solid 241,000 job creations. Like we said yesterday, the Jobs Report is subject to enormous revisions over time and next month the Labor Department will do benchmark revisions for the past three yearsthat will be a bit more telling of the labor market picture.

We are not reading too much into this 74,000 headline number, except for the fact that the labor market improvement still has a bit more to go.

And how about this lipstick on the pigthe Unemployment Rate fell to 6.7%, the lowest level since November of 2008. Huh? You may recall a couple of Annual Forecasts ago we said watching the Labor Force Participation Rate was far more accurate as to the health of the labor market because the unemployment rate carries with it, a lot of shenanigans. For instance this past month saw 347,000 people leaving the workforce that is a crazy large number and its not yet clear whether these are all people retiring or people leaving labor force because they cant find a job or a mixture thereof.

What we are reminded of is some of the recent Fed rhetoric about keeping the Fed Funds Rate at current levels for a long time , EVEN IF the unemployment rate falls beneath 6.5%. The Fed sees the unemployment rate falling, but not for just economically healthy reasons.

But one thing that is scary is the Labor Force Participation Rate, (LFPR) or the proportion of working-age Americans who have a job or are looking for one, fell to 62.8% matching Octobers number and the lowest since the late 70's. That is not good.

Rounding out the report, the private sector added 87K jobs, below the 198K expected. The average workweek was 34.4, while hourly earnings were up 0.1%, below the 0.2% anticipated.

Overall this report was weak and it gives the Fed cover to continue QE as is for the time being.

Start the day floating on new transactions with the headline behind us. But be ready to lock as prices are still trading right at resistance and it seems that every little Bond Rally has been met with selling. Stay Tuned.

Joe Shamie NMLS # 241432

First Choice Loan Services NMLS # 210764

First Choice Bank NMLS# 177877

866-970-3400 x-5135

jshamie@fcbmtg.com