Mortgage Rates Moving Higher This Morning

Mortgage rates are moving higher this morning.  A strong employment report this morning with November and December being revised upward has set the MBS’s lower, and the 10yr Treasury higher right out of the gate after the announcement.  The unemployment rate increased to 5.7% from 5.6% primarily because 700K more people entered the job market. The standout was the increase in average hourly earnings, removing the deflation concerns on wages.  Job growth in the last three months, based on today’s data is the strongest 3 month gain in 17 years.

As I mentioned, the reaction was swift - the 10yr note yield rose to 1.90% on the knee jerk, stock indexes were lower prior to the report then turned positive, 30yr MBS price started off down 36 before the announcement, but has now moved even further to -52 at 11:00am More volatility.

The report did not disappoint in terms of its constant history of coming with wide misses. The most interesting part of the jobs data today were the big increases in December and November - it does not appear the decline in oil producing jobs had any noticeable impact. This report is doing major damage to the technicals for the bond and mortgage markets. I have been bullish since the beginning of this year on the technical models, as I noted yesterday a close above 1.84% would finally remove the bullish technical bias.

Until now there has been a lot of debate about when the Fed would begin increasing interest rates.  In the wider perspective it is still a subject that will continue to be debated as each event here and globally has the impact of changing the outlook. I was thinking with all that has happened, the thought the Fed would probably not start the lift off until at least the end of this year. With today’s data I have to consider the Fed will move rates higher by maybe June. Jobs increasing, regardless of the quality, will heat up the FOMC to signal an increase when the FOMC meets again on March 17th. Yellen said previously, not until at least the April meeting for a definitive time frame but the Fed does not want to find itself behind the curve. At the March meeting the Fed will also release its quarterly forecasts and Yellen will hold a press conference.

If you have not locked before today, and with all the damage that has been done, then I would recommend to cautiously float and hope that we get back some of the loses that is occurring this morning.  I do not expect more selling through the session but with volatility at these extremes the best tactic today is to keep locked though the day. No good reason to assume risk, but if you do float keep alert.