Mortgage Rates Improved After Jobs Report

Today and yesterday the long overdue retracement began, gaining a lot of initial momentum this morning.  Not a change in the bearish overall sentiment. The Report this morning is providing some relief that the Fed will not move in June, as I did not believe the Fed would after last month’s report – as I stated no matter how strong this report could have been.  But under all the comments investors were unsure, now with April employment data the ‘consensus’ is no increase until at least September – and I still am in disagreement with that. That said it is a moving target as is always the case when the Fed is in play. Yellen would say, even now, that it is data dependent. So far the economic releases for April do somewhat confirm that Q1 was an anomaly but Q1 GDP growth +0.2% on the advance report is likely to be revised weaker later this month, possibly a negative growth for the quarter.

The report was nothing outstanding that was bullish, and it will likely not change the longer outlook on higher rates. What we had was a market that had many investors and traders holding long positions in bonds. 30 sessions in a tight range that was holding a bullish bias even though there was no significant move to continued rate declines, and yet the models and the overall market continued bullish.  During that trading range several indicators were weaken and most of the time everything was stagnant.  The only floating I recommended was when MBS prices advanced through the day, and maybe it was to unrealized gains. Not only my take but the market action overall implied that was the overall consensus. I did warn a number of times that when the trading range broke the move would be swift and deep.  Unfortunately, it went the wrong way as I had hoped it may have gone south.

After all of the volatility this week, there was not much change in any market. The 10yr note +4BPS, MBS 30yr FNMA’s +1BPS. The DJIA +167, NASDAQ -1, S&P +8. Crude oil +$0.19, Gold +$13.00. The dollar/euro -$0.0022, dollar/yen -0.39. You must keep in mind that the next couple of weeks are going to be volatile but next week starts bearish.  Treasury auctions are again next week, with Retail Sales and Business Inventories out on Wednesday, Thursday PPI, and Friday ends with Industrial Production and Consumer Confidence.

In conclusion, I did not like that the 10yr hit 2.10% this morning but could not hold, ending at 2.15%.  There is still have some uncertainty over the medium and longer term timing of an inevitable Fed rate increase.  Given this, my recommendation to clients is a bias to lock in closings within the next 2 weeks taking advantage of this recent gain and cautiously float longer term closings.  As always, your risk tolerance and ability to weather any unexpected volatility should guide your decision making.