Mortgage Rates Slightly Worse This Morning

Mortgage rates are slightly worse this morning, but that was to be expected as I mentioned in my report last night that we were going to see a little pullback soon, and it came as soon as the three morning reports were made public.  This high volatility in the markets has certainly made it tough to make a decision to lock and accept these great rates, or see if there is a little more that could be forthcoming.

We had three more very strong data sets related to the labor market this morning. Challenger announced Corporate Layoffs which will hit 38.5K - one of the lowest reading in the last two years.  ADP Private Payrolls came in much stronger than expected (172K vs est of 159K). Last month, the reading was revised lower (from 173K down to 168K) and remember this reading was no way near the freakishly low NFP reading of 38K). Jobless Claims continues to show amazing strength and is once again near 42 year lows. This week's reading was much lower than expectations (254K vs est of 270K) and the more closely watched 4 week moving average dropped again, this time to 264.75K which is about 5K less than when the last NFP report hit.

Prior to the reports, the 10yr was at 1.39% and MBSs were flat, but changed to 1.41% and a negative 10BPS for the MBSs.  However, as I stated, the markets are volatile as we are now seeing the 10yr at 1.38%, and MBSs are flat.

I expect moderate to high volatility in the MBS market the rest of the day. The above reports were very strong and under normal circumstances would push mortgage rates up rather significantly, but with the issues in the EU money is flowing to US bonds, this is helping to keep mortgage rates low. The rest of the day is about tomorrow’s June employment report. It is highly likely the May jobs (+38K) will be revised higher. ADP this morning was better although ADP at times is nowhere near the BLS as was the case in May. The June ISM service sector index showed a strong increase in employment and new orders. One report from the SF Fed pointed out that the May data was flawed as most currently believe. Nevertheless employment always takes first position from other market influences. A better than expected jobs gain tomorrow (expected up 180K) and upward revisions in May will but a pressure point on interest rates but I do not expect any selling in treasuries or MBSs to last long -  the safety factor will continue with money flowing to US high interest rates.