Mortgage Rates Shows Little Reaction to Jobs Report

Mortgage rates are slightly worse this morning, which was to be anticipated heading into the Jobs Report and the large drops we have seen in the rate market the past few weeks.

The monthly employment report never ceases to surprise me.  Non-farm jobs were generally expected up in the area of 200K as reported up 287K, however the unemployment rate increased to 4.9% from 4.7% in May as more people entered the work force (likely summer time jobs). May NFP jobs originally reported +38K were revised lower to +11K. April NFP jobs were revised higher to 144K from +123K originally reported. Of course the reaction was mixed, some seeing it a positive improvement, others pointing to the three-month average of just 147K new jobs. The average though is better than what Janet Yellen commented a month ago when she said job increases of 100K would be seen as a positive by the Fed. Media noted the UK vote but that had nothing to do with the data - the vote was June 23rd and recall most everyone in the world was expecting the UK to vote to stay.

The reaction was not much in the bond and mortgage markets. June employment was no barn burner regardless of what the bullish economic contingent believes. Initially some selling took the 10yr note yield to 1.43%, but within minutes the 10yr yield was down to 1.38%, while MBSs followed suit.  Currently at 10:00AM, the 10yr is the same and MBSs are flat.

As is the norm the employment report has increased trading volatility in the bond market this morning. The WSJ has an article on the widening spread between 30yr mortgage rates and the 10yr note yield. Yesterday Freddie reported 30yr loans at 3.41% with the 10yr at 1.39%; the spread between the two, at 2.02 percentage points, has risen in recent weeks and is at one of its widest levels since mid-2012. If the difference between the 30yr mortgage rate and the 10yr Treasury yield were at its average level for the previous 10 years, the average mortgage would be 3.17%. Mortgage rates key off the 10yr Treasury. It has taken 20 years for most of the mortgage market pundits that had refused to admit that reality - mostly keeping originators in the dark.

Mortgage rates showing some volatility again this morning, but we are staying in a relative tight range over the last few days. Nothing now until later this afternoon at 2:00PM when May consumer credit data is reported by the Fed which may cause some increased volatility in mortgage rates. I am still staying the same course to cautiously float but recommend to lock if you are about to close in the next 15 days.