Mortgage Rates Improved Today

Mortgage rates improved today erasing all the loses this past week. The most prevalently quoted conforming 30yr rate for top-tier scenarios is back down to 4.5% after challenging 4.625% over the past 2 days.

The March employment report was generally in line with most forecasts when we take the revised increases in jobs in Jan and Feb.  The unemployment rate was expected to decline to 6.6% but held unchanged from February.  No big deal though, as most analysts have finally come around to our view and the view of Janet Yellen that the unemployment percentage is not a true measurement of the job markets.  Technically, the 10yr once again held its critical resistance at 2.80%.  As I mentioned yesterday,  if it held today the note will re-test 2.70% and braking below that level will drop rates by another 10 basis points to 2.60% and mortgage rates down about 10 bps also. That said, we believe it is more reasonable to define the rate markets as drifting sideways in a wide range.

The rally in the bond and mortgage markets today was simply a technical bounce as the 10yr held the key resistance levels, regardless of how one defines the employment data.  The stock market also aided the rate markets a little today.  The key indexes were hit hard, the DJIA at one point down 180 points, NASDAQ -126.  Volatility has increased in equity markets as forecasted recently, in the bond market just tight swings with hardly any significant changes.  The equity markets may finally be focusing on the lack of inflation and the fear that deflation may be creeping in - I am never quite sure what underpinnings investors think about in their investment decisions.  There is not much logic at times in how markets respond to news.

The stock market is vulnerable now for a rather strong sell-off.  The indexes and the economic outlook are weaker than the outright level they current trade at.  It is beginning to sink in that all is not as positive as investors had bet on.  The best the bulls can come up with has been the weather hurt the economy and when the dust settles all will be just fine. Well, the dust is settling and the recent economic data is at best holding on, but not growing much.  Consumers are still not spending and most economist are not expecting that to change – as well as there being no pick up in discretionary spending.  Banks still have ridiculous credit standards.  Housing, for all of the optimism spouted, is not growing.  It still may be weather but my view is more bearish, look for a protracted sell-off in stocks over the next month or two.  If what is being stated is correct, the initial reaction will help the rate markets but after a quick improvement rates should start a slow turn higher.  What the Fed should do now is to push rates higher to improve the inflation level or the global economies may decline in another round of weakness.  Keep an open mind to all the bullish comments coming from Wall Street and economists.  If one wants one thing to hang the bullish hat on it’s the Federal Reserve and other central banks - but all of them, including the Fed are running out of effective bullets.

In summary, it appears the markets were pricing in a much better than expected jobs report.  The number of jobs created came in just lower than expected which you would think would result in rather boring sideways trade all day. That did not happen as rates rallied following the release and rallied further on headlines out of the EU. If you were a big enough risk taker to float through this morning’s data, I would continue floating over the weekend.