Friday’s bond market has opened down sharply following the release of October’s employment numbers that were much stronger than anyone thought. The stock markets are reacting negatively to the news also, but to a less degree. Despite stock friendly data that shows economic strength, the Dow is down 50 points while the Nasdaq has fallen 16 points. The bond market is currently down 26/32 (2.32%), which should push this morning’s mortgage rates higher by approximately .250 of a discount point. A little strength in bonds late yesterday is helping to prevent more of an increase.
The Labor Department gave us today’s unfortunate news. Their monthly Employment report revealed that 271,000 new jobs were added to the economy in October, greatly exceeding forecasts of 181,000. The unemployment rate slipped from 5.1% in September to 5.0% last month, its lowest rate since April 2008. And the third strike was average earnings that jumped 0.4% when analysts were expecting a 0.2% increase.
We really can’t find any bond-friendly news in this report. There are solid gains across the board, indicating that the employment sector is gaining momentum. The data practically guarantees the Fed will raise key short-term interest rates at their December FOMC meeting. And because the Fed feels the economy is strong enough to make such a move, bonds are reacting negatively to the news. I believe this morning’s sell-off may be a little bit of an overkill and just a knee-jerk reaction, so don’t be surprised to see some losses recovered by the end of the day or in the immediate future. However, the report is clearly bad news for mortgage rates and we are seeing an increase in this morning’s pricing as a result.
Next week has only a couple of relevant economic reports scheduled for release and they don’t come until late in the week. There is nothing scheduled for Monday that is expected to affect bond trading or mortgage rates, so don’t be surprised to see this afternoon’s trading carry into Monday morning. If bonds do rebound from their lows this afternoon it could be a positive morning Monday. On the other hand, if bonds extend this morning’s losses, we may open the week with another increase to rates. Look for details on next week’s activities in Sunday evening’s weekly preview.