Friday’s bond market has opened in positive territory despite a stronger than expected employment report. The stock markets are reacting favorably to the data with the Dow up 177 points and the Nasdaq up 37 points. The bond market is currently up 10/32 (2.28%), but due to heavy selling late yesterday we should still see an increase in this morning’s rates.
We saw widespread lender increases yesterday afternoon as bonds spiraled lower throughout the day with some issuing multiple revisions. Therefore, just how much of an increase you will see in this morning’s rates depends on how much of an intra-day move your lender made yesterday. The net difference between yesterday’s morning pricing and this morning’s rates should be approximately .125 of a discount point higher.
The Labor Department gave us today’s highly important data with the release of November’s Employment report. It revealed that the U.S. unemployment rate remained at 5.0% and that 211,000 new jobs were added to the economy last month. The unemployment rate matched forecasts but the payroll number was higher than the 195,000 that was expected. Although that’s not a huge variance from forecasts, upward revisions to October and November that totaled 35,000 make the number a little more negative for bonds. The average earnings reading showed no surprise with a 0.2% increase.
Today’s release can be considered bad news for bonds and mortgage rates. However, we should say “not that bad.” What it does more than anything is practically guarantee a .25% increase to the Fed’s key short-term interest rate when they meet the week after next. This will be the first rate hike since 2006. Fortunately though, the markets appear to already have this priced in, which is logical. In other words, we are not seeing a sizable sell-off in bonds because the report wasn’t much stronger than thought and it did little to alter the general consensus on what the Fed will do later this month.
Next week has only a couple of relevant economic reports set for release along with two Treasury auctions that often indirectly influence mortgage rates. All of the week’s events take place the latter part. Look for details on next week’s calendar in Sunday evening’s weekly preview.