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Friday’s bond market has opened sharply lower following much stronger than expected employment news. The stock markets are surprisingly having a subdued reaction to the same data with the Dow up 9 points and the Nasdaq up 24 points. The bond market is currently down 34/32, which will likely push this morning’s mortgage rates higher by somewhere between .500 and .750 of a discount point.
The Labor Department gave us this morning’s big news with the release of October’s employment statistics. They announced early this morning that the unemployment rate moved up to 7.3% as it was expected to. That actually could be considered good news for bonds and mortgage rates, but the payroll numbers made it irrelevant. Today’s report showed that 204,000 new jobs were added to the economy last month, doubling forecasts of around 100,000. The data and statements that are part of the report indicate that the government shutdown had little impact on the numbers. In addition, upward revisions to September’s and August’s payroll numbers added 60,000 jobs over the two months.
204,000 jobs is not an overwhelmingly strong number for the long-term economic outlook. However, if comparing to what the markets were expecting, it sure looks like a strong number and the markets are trading accordingly. The yield on the benchmark 10-year Treasury Note is currently at 2.74%, just above that important threshold referenced earlier in the week. If it doesn’t fall below 2.72% almost immediately, I believe there is a good chance of it moving higher very soon. Since mortgage rates tend to follow bond yields, this would translate into even higher rates than we are seeing today.
September’s Personal Income and Outlays report was also posted early this morning, revealing a 0.5% increase in income and a 0.2% increase in spending. The income reading was much higher than the 0.2% that was forecasted, meaning consumers had more money to spend than many had thought. That is a negative for the bond market and mortgage rates. However, the spending portion of the report matched forecasts, making the data slightly negative for the bond and mortgage markets. Although, this data has had little impact on today’s trading or pricing due to the importance of and the surprise in the employment data.
The University of Michigan posted their Index of Consumer Sentiment for November just before 10:00 AM ET this morning, showing a reading of 72.0. This was much weaker than the 75.3 that was expected and more importantly a decline from October’s 73.2. That indicates consumer confidence in their own financial and employment situations was softer than analysts were expecting to see, making it favorable news for the bond market and mortgage rates. Maybe if it came on another day we could have been happy about it. With today’s employment news, the markets have had no interest in this report and it has done little to derail the bond selling.
Next week doesn’t have any key economic data scheduled for release but does have a couple minor reports set to be posted in addition to a couple Treasury auctions. The bond market will be closed Monday in observance of the Veteran’s Day holiday with no early close today. The stock markets will be open for trading.