Mortgage Rates End Slide

Mortgage rates ended a 5-day losing streak, moving lower for the first time since May 28th. In terms of the effects on mortgage rates, the most prevalently quoted conforming 30yr fixed rate for best-case scenarios is still at 4.25%. 

It sounds like a broken record but once again both stocks and bonds surged during our trading session as the DJIA is up +88.11 and our benchmark FNMA MBS is up +26BPS. 

The first half of our trading session today was all about the European Central Bank (ECB). After teasing the market for the past four ECB meetings, they finally lowered their rates. The market widely expected this as it was well telegraphed.  The second half of our trading session saw our benchmark MBS move back above our 25 day moving average amid speculation that tomorrow's all important Non-Farm Payroll report would be much weaker than expected.

What does the ECB have to do with mortgage rates? Quite a lot actually. Expectations for rate cuts and other accommodation measures have been helping bond markets in the US move lower in rate for two months, and Mortgage Backed Securities (MBS) are a key component of that market.

So now this brings us to tomorrow’s big data release - Jobs, Jobs, Jobs.   The closely watched Non-Farm Payroll (NFP) report is expected to hit in the 215K to 220K range. Really the bond market will be happy with most any reading above 200K. But prior period revisions will also play a key role in pricing as traders want to see if the last reading of 288K holds or if it is revised lower. Bottom line, we get a current reading of 225K or more and only a slight revision to the last reading of 288K and MBS will sell off. If we get a reading below 200K and the prior period is revised lower, then MBS will rally.

Unemployment Rate - Is expected to remain in the 6.3 to 6.4 range but this number is so skewed by a falling participation rate that bond traders ignore it.  Consumer Credit - An increase in this number means that consumers are spending which is good for retail sales and the overall economy even though it is not good for the health of the household as they incur more debt.

In summary, after a week of important data, it looks like the future direction of mortgage rates comes down to NFP tomorrow. Investors are still sitting in a very protective position and the results tomorrow can move the market in one way or the other. The safe move is to lock.