Friday’s bond market has opened down sharply following stronger than expected results in this morning’s employment report. The stock markets are not having the reaction that we would expect, with the Dow down 15 points and the Nasdaq down 5 points. The bond market is currently down 24/32 (2.39%), which should push this morning’s mortgage rates higher by approximately .375 – .500 of a discount point over Thursday’s morning pricing.
There is no big surprise in the bond market’s reaction to this morning’s key data. The Labor Department posted May’s Employment report at 8:30 AM ET. It showed the unemployment rate rose 0.1% to 5.5%, that 280,000 new jobs were added during the month and average earnings rose 0.3%. The unemployment rate is technically good news for bonds since it was an increase, but it is being attributed to more people entering the workforce such as recent college graduates. Besides, it was too little to offset the other pieces.
May’s payroll number was much stronger than the 220,000 or so that was expected and upward revisions to April and March’s numbers added 32,000 jobs to the year-to-date total. Furthermore, the 0.3% rise in earnings exceeded forecasts of 0.2%. These numbers indicate a strengthening employment sector that some analysts believe will cause the Fed to make their first short-term rate increase sooner than later. This is why stocks are also reacting negatively to the news.
This week’s move in bond yields is quite concerning for mortgage shoppers. Besides the increase in rates this week, the yield on the benchmark 10-year Treasury Note blew right through 2.30% and 2.35%. Unfortunately, if this holds and does not move back below 2.35%, we could be looking at 2.55% very soon. Since mortgage rates tend to track bond yields, this means more increases for mortgage shoppers if the upward trend in yields continues. Therefore, please proceed cautiously if still floating an interest rate and closing soon. There are some events in the middle of this month that can significantly alter any upward or downward trend, but we could be at that upper range by the time we get to them.
Next week has a couple of higher level important reports scheduled in addition to a couple Treasury auctions that can influence mortgage rates. All of the week’s relevant activities take place the latter days, so don’t be surprised to see carryover from this afternoon’s trading on Monday. Look for details on next week’s calendar in Sunday evening’s weekly preview.