Mortgage Rates Spike After ADP Report

Mortgage rates spiked today as the market was shaken this morning on the February ADP Report which blew away expectations and setting the table for a blockbuster NFP report on Friday. The bond markets had already moved higher in rate overnight, but the trend took off with the news.  What is surprising is that this report, as important as it can be, has been a soft precursor to the news that comes out 49 hours later.  However, when something like this beats the forecasts by as much as it did, the markets had to adjust their positions ahead of what may happen on Friday.

The data this morning adds to the reality that the Fed is falling behind on increasing interest rates at a more rapid pace.  The Fed must move three times this year to keep up with the economic growth that will inevitably lead to increased inflation. The Fed can be criticized for its slow movement, but as I stated this morning, I felt that they did what they had to do.

Treasury sold $20B of 10yr notes this afternoon, and the results were better than previous months.  Crude oil inventories increased today. The result a big decline in oil prices, down $3.00 at one point - a helpful event for the bond market in a left-handed way. Supply exceeding demand always lowers prices.

What is the bottom line?  We had the sharpest increase in rates since the elections, and the 10yr is now at 2.55%.  Tomorrow has several reports coming out, along with the ECB meeting overseas. However, most of the chatter will still be on today’s news and the speculation on what will happen on Friday.

In summary, ADP's projection for February job growth blew away expectations, possibly setting the table for a blockbuster NFP report Friday.  Mortgage rates rose (again) on the heels of this bullish economic news, and the recent upward rate trend continues.  I see limited incentive to float here, and some others who are now considering locking for 60 days. Right now, the trend is NOT our friend.