Mortgage Rates Reaction to Jobs Report Interesting

Mortgage rates moved lower today, following after the labor department reported lower-than-expected job creation in the month of April.  However, what was very interesting was the reaction by the MBSs and 10yr reacted to this news – two areas that are key elements that seem to direct the future where the mortgage rates tend to move.  Part of the reason is the uncertainty and potential volatility associated with today's employment data.  There is always some chance it can send markets much higher or lower.  As such, some of the banks seems to still be holding back, which cause concerns for which direction one should follow if trying to make a decision with locking in a rate.

Employment data each month roils markets - usually the roiling occurs after the data is reported. This time not the case, as yesterday the bond and mortgage markets improved betting on a weak report. The report was weaker on the headlines as was thought. Today the gains we saw yesterday were wiped out on the 10yr yield. After digesting the details of the job markets investors did not see it as so negative, the bond market lost yesterday’s improvement and after opening lower this morning the stock indexes ended better this afternoon. MBS prices increased yesterday and held most of it today. At least for now markets are looking at the April employment data as a one off report.

Other recent April data, the two ISM reports, were better than in March. April data will continue to be released in the next couple of weeks - it is important because its Q2 data. After the soft growth in Q1 markets expect Q2 to show growth.  The one thing now markets agree on is that the April report will negate any movement by the Fed at next month’s meeting. The US and global economies looking a little better but better is a relative term, better from deep weakness is not to be taken as solid growth increases.

Yesterday the techs all turned bullish, as floating was the answer yesterday into today, but during the day, prices declined somewhat. Discipline at times is hard. With the yield on the 10yr backing up today the models work remains mildly bullish, however I am now being very cautious as today was a day to grab these prices if you were closing in the next 30 days.  If longer, it is a very tough call as rates should move lower, but now the question is when – and really by how much?

In summary, bonds actually regressed slightly today, despite a tepid jobs report.  My hunch is that bond traders anticipated the results, so "bought the rumor, then sold the news".  The fact we did not post gains is worrisome, and may indicate we are nearing rates' short term lows.  I love writing loans at these levels, not so keen about floating when we are at risk of rates bouncing back up.  I have decided to discuss with my clients that today was the day to lock if we are closing in the next 30 days, as we are at the lowest rates in three years.  Longer time frames just do not want to make a move to those levels yet.