THERE’S NO DEBATE ABOUT IT…Mortgage Bonds took a sound thrashing last week, with home loan rates rising about .125% across the board. Although the jam-packed economic calendar provided mixed to softer data that seemingly would have supported Bonds at their current levels – a few different factors drove a dark cloud over the Trading pits last week.

First – the price of oil is now tickling $50 a barrel. As Oil tip-toes about this psychologically important level, the recent spike towards higher prices renews the fear of future inflation, which would erode the value of Bonds.

Second – the world’s eyes were turned towards the Presidential debates last Thursday evening. Traders likely watched and wondered…regardless of who wins next month’s Presidential Election, how will all these ideas be paid for? Deficits will probably get worse before they get better, and the US economy will likely see some stimulus. This suggests some inflationary pressure down the road…and again, Bonds loathe inflation.

The week ahead will be interesting, with the Presidential debates continuing next Friday evening, as well as a big-time economic report player making its monthly appearance next Friday morning…the Employment Report. The Jobs number can cause major swings in home loan rates, so this is definitely one to watch.

IT MIGHT BE OK FOR MUHAMMAD ALI TO “FLOAT LIKE A BUTTERFLY, STING LIKE A BEE…” BUT AFTER OCTOBER 28TH, IF YOU CONTINUE TO “FLOAT LIKE A BUTTERFLY” WITH CHECKS YOU WRITE, PREPARE TO BE STUNG! DON’T MISS THIS WEEK’S IMPORTANT MORTGAGE MARKET VIEW.

While this week will bring some nice warm-up acts with the ISM Service Index on Tuesday and the Initial Jobless Claims number on Thursday…the big headliner of this week will be waiting in the wings…the monthly Employment Report, coming this Friday morning at 8:30am ET.

If the Employment Report shows job growth that meets or exceeds analyst’s expectations, Mortgage Bond prices will be quickly driven down further and home loan rates will pop just a bit higher. If the Report is weak, home loan rates could improve slightly as Bonds attempt to “muscle” their way back through overhead resistance.

The chart below shows how Bond prices were unable to improve above a monster ceiling of resistance, but instead were turned back hard, and got roughed up all last week.

Bottom Line: Not much rate movement is anticipated before the big Employment Report on Friday. The results of the Report will likely be the deciding factor for setting the direction of rates for several weeks to come.

But after October 28th, if you continue to “float like a butterfly” with checks you write – prepare to be stung.

What exactly is “floating” a check? Imagine that you are in a store on Saturday making a purchase. Although you know there is not enough money in your checking account to cover the check you are getting ready to write…you write the check to the store anyway. You know that payday is Monday, and the check you just wrote won’t possibly get to the bank before your paycheck is there to cover it.

Well – not any more.

A new law called “Check 21” is going into effect on October 28th, and all checks written will be cleared electronically within minutes – almost like when a credit card is run. Yes, even at night, even on weekends. Retailers will now have the ability to run your check through a machine that deducts the cash immediately. In the above scenario, your check will bounce – and you will be charged overdraft fees. It’s also the end of the “paper check” system, as the check will be scanned with an image saved for records if needed, but the check itself will be destroyed.

Here are a few other interesting implications for consumers:

• You won't be able to get your original paper checks back, because your bank will no longer have them.

• Check 21 creates a new kind of paper copy of a scanned image of each check, called a "substitute check." Only this substitute check is considered the legal equivalent of the original check. Your bank should be able to provide you with a substitute check if ever needed, but you can also ask about an account that will automatically provide return of substitute checks with your checking account statements. Fees are certain to apply, so be sure to ask about the costs associated with a substitute check-returning account.

• Unfortunately, you will not have access to the funds from checks you deposit any sooner, because the new law does not shorten check hold times for banks.

For more information, check out these two websites:

Consumers Union - Q and A on Check 21

Federal Reserve - Consumer FAQ's on Check 21

The “800 pound Gorilla” on this week’s economic calendar is the September Employment Report scheduled for release at 8:30am ET. Before the main event occurs…Traders will take a look at the ISM Services (Non-Manufacturing) Index on Tuesday and Initial Jobless Claims on Thursday. But Traders will be focusing the vast majority of their attention on the arrival of Friday’s Employment Report.

Remember, as a general rule, weaker than expected economic data is good for rates, while positive data causes rates to rise.