Mortgage Rates Quiet After Jobs Report

During the first week of every month, there is always something to debate when the employment data is released on the first Friday of the month – and this time no different. The unemployment rate fell to 4.4% from 4.5% in March but was forecast to have increased to 4.6%. Non-farm jobs were thought to increase 185K, jobs increased by 211K; private jobs were expected up 180K, they increased 194K. Average hourly earnings expected up 0.3% increased 0.3%. The labor participation rate in March was 63%, it slipped to 62.9% in April. Those stats were the pluses. The negatives; March non-farm jobs that were surprisingly weak at 98K were revised to 79K, March private jobs initially reported at a weak 89K were revised to 77K. The annual average hourly earnings declined from 2.7% in March to 2.5% yr/yr in April.

When the data hit, there was an immediate reaction that the data was bearish to interest rates and mortgage prices. But the initial reaction sent the 10yr note down to 2.34% and MBS prices upward from yesterday’s close. It took 30 minutes for traders to reverse, and it has been calm ever since. 

The chatter after the employment report was that it would increase the potential of the Fed increasing the fed funds rate at the June meeting. That is not an unreasonable thought, but so far traders are not buying it. If you need a reason to balance fundamentals with technicals this is a good one. Talk is one thing - actual market movements, however, is where the focus should be. The decline in yr/yr average hourly earnings and the last two months of weak job growth have kept interest rates steady so far. March and April job growth taken together show just 145K averaging the two months. 173K of the 211K increase in April were in the low-wage service-producing sector, only 21K jobs in goods producing.

The long end of the interest rate yield curve pays more attention to inflation outlooks than job growth, although not ignoring the job and unemployment readings. Inflation based on this morning’s report and now linked to big declines in commodity prices led by crude oil are balancing the better jobs and the drop in the unemployment rate so far, this morning.

The employment report this morning appears to be a neutral reaction from both the stock and bond markets so far today. Rates holding steady but stocks lately are losing some momentum. Now that April employment data is out, the next hurdle for the treasury markets is next week’s quarterly refunding issuing new 10yr and 30yr note and bond. At 11:00AM, it is quiet with the 10yr at 2.35% and MBS showing little changes. There are no more data points today except March consumer credit later this afternoon - but Fed officials are out there along with Janet Yellen.

Locking on Friday can make you rest easy, especially since we have an unknown over there in France, but if you are going to float, do such with caution.