Mortgage Rates Almost Perfectly Flat Ahead of Jobs Report

Mortgage Rates were almost perfectly flat today, despite moderate weakness in bond markets.  This is largely a factor of yesterday's weakness and the fact that it coincided with the morning rate sheets.  While some lenders did undergo price improvements yesterday afternoon, they were generally conservative with more important data yet to come.  The most prevalently quoted rate for an ideal Conforming 30yr Fixed loan remains at 4.625%.

Tomorrow is the big day--the mighty Employment Situation Report (aka the "jobs report," NFP, Payrolls, etc).  As always, this is the biggest potential market mover of any given month in terms of economic data, even during times where it's not seen as a critical component in Fed policy decisions.  So the fact that financial markets see a strong jobs report as prompting the Fed to reduce asset purchases sooner than later, makes this instance extra important.

A rather morbid silver lining heading in to tomorrow is that interest rates have risen quickly enough during November and early December that bond markets (which underpin mortgage rates) won't be as surprised as they otherwise would be by a strong number.  In a way, interest rates have been defending against a strong number with all the recent weakness.  While this doesn't mean that rates couldn't move swiftly higher tomorrow if the data surprises, it might serve to limit the pace of the increase.

The trickier question concerns where rates would go if the data was significantly weaker.  The consideration here is that the tone of the economic data in general combined with what we know about Fed policy leads markets to conclude that monetary policy will be getting less friendly sometime in the next few months.  Some people think it happens in 2 weeks, others think not until April. 

Whatever the case may be, as long as most market participants believe it's on the horizon, it will continue to be unlikely that we see new major lows in rates.  We're at 4.625% now and the last major low was 4.25%.  Tomorrow's data alone isn't enough to get us back there, even though a "miss" (weaker than expected data) could buy some breathing room between here and the FOMC announcement in 2 weeks.