Mortgage Rates Tad Higher Ahead of Jobs Report

Mortgage rates were a tad higher today due to what came about late yesterday.  Tomorrow brings the Employment Situation report, widely regarded as the most important piece of economic data on any given month.  This report has a long tradition of causing big moves for interest rates, but its power has recently been muted by shift in the market's focus.  Investors are more concerned with the Fed's next move and the Fed is more concerned with inflation and global economic stability.  Everyone is well aware that payroll creation has been strong.  So while the bond market may have a volatile initial reaction, bigger picture shifts will have to find inspiration elsewhere.

Currently we are sitting on a very critical level if interest rates are about to decline as the 10yr is at 1.81%.  You know that I have been stating that 1.80% has been a key resistance level.  MBS prices also at equally critical levels. Employment tomorrow will possibly determine whether the 10yr drops below 1.80% or not, if not the 10yr will most likely edge itself back up to re-test 1.90%. Three weeks now that the 10yr and MBS prices have been locked in a very narrow range. Will the Fed move now or wait until July - data is important but the British vote on leaving the EU on the 23rd is getting sticky, polls are tightening as the clock ticks.

US data is one key for the Fed, tomorrow’s employment data is one of the most important but not the end all. Also tomorrow morning the May ISM services sector index and April factory orders. All reported measurements will be mixed into the pie but not evenly divided, some more important than others. Like a painting, mixing the colors varies on their importance. No longer than a week ago the British vote was thought to a slam dunk that Britain would vote to stay - not abnormal that when a vote gets closer the consensus washes away. Regardless of the US data I believe the Fed will wait until July to move, not sure how global and European markets will take an exit vote, or how the EU will digest it.

Frankly, it does not matter if the Fed waits until July markets have already swallowed the pill, timing is less important. That said, it could be important if waiting one month and data points weaken it would move the rate increase expectations to September and roil markets positioned for June now, for July if the Fed waits. Markets are increasingly more annoyed with the Fed that has been crying wolf for the last two years while kicking the can down the road. The Fed is worried, banks are increasingly worried and investors are finally worrying about the real underlying state of the US and global economies.

In summary, volatility seems to now be the norm.  I need more pills to stop the acid build up in my stomach.  We have seen how much global, rather than domestic, economic conditions guide mortgage rates.  If you are comfortable with some risk, you might see improved pricing if NFP fails to meet projections.  I am neutral on locking July closings at this point, but my June files are all locked, as clients are sleeping soundly at night.