Mortgage Rates Moved Higher Today

Mortgage rates moved higher today to the highest peaks since the first week of January.  The 10yr Treasury note sits right on the key resistance at 2.80% - and is now dependent on the March employment report due out on Friday.  The ADP report for March was about in line with estimates but the 39K increase in the revised February report made it overall a lot stronger. Friday the BLS estimate is for an increase of somewhere in the 200K range for non-farm payrolls and 215K private jobs.

Our current situation is not all that dissimilar. Once again, a potentially pivotal Employment report approaches this Friday with rates ready to move higher or lower at a quicker-than-normal pace depending on the tenor of the data.  It's not quite as dire a situation as early 2014 when rates were at the highest levels in more than 2 years, but neither is it pleasant to have rates at their highest levels in more than 2 months. 

Overall the job market, at least based on the raw data, is gaining momentum.  The markets don’t give too much credence to the quality of the low paying jobs; Janet Yellen said Monday she was concerned about the type of jobs, many new ones are low paying and not the quality that will boost consumer spending and pull the inflation rate up to 2.0%.  Today’s ADP report indicated that 164K of the job increases it reported was in the service sector.  We can debate how the low paying jobs effect the economic outlook but that is a story for another time. The headline is all that matters now.

When the trading range of Mortgage Backed Securities (MBS) is stretched to its weakest recent limits, rates rise. The most prevalently quoted conforming 30yr rate for top-tier scenarios is 4.625%.

The lock/float outlook is straightforward at the moment. If you choose to float, you're rolling the dice for an exceptionally weak jobs report on Friday. There's not much point to floating today with the intention of locking tomorrow. Friday is the main event.

In summary, the strategy of locking each day for the last several days has held to be true, as each day pricing has gotten a worse. My gut says we're selling off enough that the number on Friday would have to be very strong for selling to continue. Unfortunately, after the last several months and some incoming forecasts that whopper very may be a reality. Too much risk in floating, LOCK is really the only alternative.