Mortgage Rates Volatility Back to Last Friday's Levels

Mortgage rates erased yesterday's losses after today's jobs report, though not necessarily because of it.  The first week of the month is traditionally one of the biggest sources of market movement when the Jobs report comes out on Friday.  Hence, when we see movement in the markets that affect mortgage rates, it is only natural to assume a cause and effect relationship to the report.  That said, most of the credit for today's move goes other places.

November employment, a mixed picture this morning.  Overall it was a good report. The bond and mortgage markets rallied a little today mostly because both are over-sold and traders did not like it that the 10yr note that made a new high yesterday to 2.44% as it did not hold overnight.  Nothing has changed - interest rates bearish and not likely to turn around in the immediate term. We may see some improvement next week, if that happens it should be a technical move and not a fundamental change in the outlook.

The dollar has spiked higher in the last month, also overdone from a technical perspective. Too much in too short of period. Both stocks and bonds have taken the Trump win as a huge plus for economic growth, reduced regulations, higher wages, and increased inflation. That in our view is also too much optimism - he is not even in office and when he does officially take over look for his path through Congress not to be as easy as markets currently think, even though Republicans hold total control of the House and Senate. This honeymoon is stretching reality now.

Usually the following week after the Jobs report, there is not much data that will cause the markets to move as the ISM services sector index is the highlight of next week.  Overall this week, the 10yr did move up a few basis points to 2.39%, and MBSs, as heavy as the ride was this week, was a few basis points on the positive side, and the mortgage rates are where they were last Friday.  The biggest mover was oil (+ $5.62).

There are several important events coming up in Europe over the next week and they're adding to market volatility.  The effects were bad for rates yesterday, but European bond markets (which correlate by varying degrees to US bond markets, and thus, mortgage rates) came charging back today. 

In summary, there is a simple fact that rates have been trending so decisively higher, that this week we were on a wild ride that came down, made a turn sharply upward, and then retreated today. A small victory for those who floated into the Job’s Report. Not sure I would be excited, as we have seen how quickly these gains deteriorate.  I am tempted to see how the referendum this Sunday in Italy shakes things up.   I am all for improved rates, but the big question is whether we build on today's gains or give them back next week.  I am still inclined to lock loans closing within 30 days.  Those closing next year and/or borrowers with appreciable risk tolerance could float, just do not ignore the markets - as volatility is certainly a given these days.