Friday’s bond market has opened in negative territory for the fifth consecutive day following some surprisingly strong economic news. The reaction to the data in the stock markets has been much more subtle with the Dow up only 30 points and the Nasdaq up 4 points. The bond market is currently down 26/32 (1.90%), which should push this morning’s mortgage rates higher by approximately .250 of a discount point. Softening the increase are gains from late yesterday that are preventing more of an upward move in this morning’s rates.
Today’s big news was January’s Employment report that gave us results that were not expected by anyone. It showed that the unemployment rate rose from 5.6% to 5.7% last month when it was expected to remain unchanged. That is technically good news for the bond market but played a backseat role in this morning’s action. It was the payroll numbers that has caused havoc in the markets and left many analysts scratching their heads. The first part of that was the 257,000 new jobs added last month that exceeded forecasts of a 235,000. On the same topic, upward revisions of 70,000 and 77,000 jobs respectively to November and December means the economy has added over 1 million new jobs over the past three months. That is a pretty strong rate of growth and indicates the economy may be healthier than many had thought.
Also worth addressing is a surprise jump in average earnings. Today’s report showed a 0.5% increase in earnings, exceeding the 0.3% that was predicted. This means workers are earning more money and have more fuel to spend. Besides concerns of wage inflation in the sector that is a concern to bond traders, it also indicates consumer spending may pick up speed also. Since consumer spending makes up over two-thirds of our economy, any related data is of interest to market participants.
Overall, today’s news was clearly negative for the bond and mortgage markets. We are seeing a justified reaction to the news in bonds and mortgage pricing. Unfortunately, this selling is likely to continue throughout the day with a decent possibility of seeing another increase in rates before the end of the day. Not only should this be a concern for today’s session, but the benchmark 10-year Treasury Note yield is now above recent resistance levels. That means there is a good chance of seeing them move higher before coming back down if they close above that threshold. And that means higher mortgage rates. Therefore, please proceed cautiously if still floating an interest rate and closing gin the near future.
Next week has very little economic data scheduled for release but does have two Treasury auctions that certainly can affect bond trading and possibly mortgage rates. Nothing of relevance is set for Monday, so we can expect this afternoon’s trading and weekend news to be the biggest factors in Monday’s bond trading. Look for details on next week’s events in Sunday evening’s weekly preview.