Bonds Recoil, Stocks Await Jobs

Bond traders also mentioned that the Hudson Employment Index jumped to its highest reading since April, as workers report greater optimism about their personal finances, as well as expectations their employers will be adding new jobs.

Consumers might be feeling better because mortgage rates are at their lowest levels in 13 months, as more data support a possible bottoming in residential real estate. The Mortgage Bankers Association reported that mortgage applications in the week ending Wednesday jumped 8.1%, and refinancing activity increased 13.7% from the prior week.

The report was doubly encouraging regarding consumer stability, as the week's mortgage activity suggests people are locking in low long-term rates and not opting for adjustable-rate mortgages. The average 30-year mortgage rate fell to 5.98%, according to the MBA, the lowest rate since October 2005. Mortgage refinancing activity reached levels not seen since April 2004, and the amount of adjustable-rate mortgage activity decreased to its lowest level since 2003, according to the MBA.

The irony is that the bond market's exuberant rally and subsequent low rates are the catalyst for the mortgage activity and the homebuilding-stock resurgence. So, any large jump in rates could spark a plunge in housing once again.

For now, the next wave of Wall Street support for the homebuilders washed up Wednesday as Citigroup published a report increasing price targets for several homebuilders, and suggesting investors get in while they are still inexpensive. The upgrade came a day after Toll Brothers'(TOL Quote) CEO Robert Toll saying he sees a bottom in several residential real estate markets around the country.