Mortgage Rates



Friday’s March employment report (non-farm jobs up just 120K and private jobs +121K) was half what was expected by economist and analysts. The reaction was swift and strong sending mortgage prices up 28/32 (.88 bp) and the 10 yr note yield down to 2.04% -14 basis points. Mortgage rates down about 12 basis points. The stock market was closed on Friday for Good Friday; this morning the key indexes are catching up to the reaction to the soft employment. The DJIA opened at 9:30 -90, NASDAQ -44, and S&P 500 -15; within five minutes the DJIA was off 143. The 10 yr note +4/32 to 2.03% -1 bp while MBS prices were up 4/32 (.12 bp) frm Friday’s close.

Employment didn’t come close to the forecasts, while not unusual for the monthly report, it was so far off the mark it sent traders and investors back into treasuries on increased belief the Fed may be more inclined to ease further. It was not only employment that drove rates down; Europe’s debt problems are back again after a month or so of little news. Spain’s prime minister saying his country is in “extreme difficulty”. Once again investors are turning to safety on the idea Spain is going to need a bailout and reprise concern that Europe’s economies will drag the region into recession and resurrect the concerns that the EU may not survive. The renewed fears are hitting US equity markets; after the strong rally in the key indexes stocks were prime for some decline but until Spain and the employment report took control the pull back in stock markets was being thought of as a buying opportunity; now the outlook has become much less optimistic. Not only is Spain in the headlights; The European Central Bank’s financing for Portuguese lenders rose to a record in March. Portugal became the third euro-area country after Greece and Ireland to require aid and will receive 78 billion euros under its agreement with the International Monetary Fund and the European Union.

Although job gains in March were half of what the last four months revealed, is that enough to get the Fed to ease again? Not a question easy to answer; one month of disappointing job growth isn’t in itself enough to get the Fed to ease. Besides as long as long term rates are at the present low levels an easing move wouldn’t likely add much to pushing rates much lower. Low interest rates are not the problem for the economy, low rates haven’t driven employment up or done much for the housing sector. That said, the potential of another QE will be debated now for a month. Investors are plowing into Treasuries at a record pace as the supply of the world’s safest securities dwindles, ensuring yields will stay low regardless of whether the Federal Reserve undertakes more stimulus to fight unemployment.

Treasury will auction $66B of note and bonds beginning tomorrow with $32B of 3 yr notes, Wednesday $21B of 10 yr notes and Thursday $13B of 30 yr bonds.


After the huge rally in the bond and mortgage markets on Friday the technical outlook has improved. The 10 yr note yield well under its 20 and 40 day averages and all of the momentum oscillators we track went from neutral to bullish levels. Although the picture has changed we still believe there will be continued volatility in the bond market for the next week or two until things settle a little.