Mortgage Rates



If the monthly employment data ever came close to forecasts the world would stop rotating. Jan unemployment rate fell to 8.3% frm 8.5% in Dec and expected unchanged in Jan. Non-farm jobs increased 243K, forecasts +135K; non-farm private jobs +257K, forecasts +170K. Nov non-farm jobs were revised from +100K to +157K, factory jobs +50K and service producing jobs +162K. As for the decline in the unemployment rate, the implication is that many more unemployed have stopped looking for a job. The reaction in financial markets was swift; the 10 yr note yield increased 9 basis points to 1.90%, MBS prices declined 8/32 (.25 bp) as of 9:00 am. Stock indexes rallied, up 110 points on the DJIA and rallied Europe’s markets. The 243,000 increase in payrolls was the most since April and exceeded all forecasts in a Bloomberg News survey.

A week ago at the conclusion of the FOMC meeting Bernanke said unemployment was not likely to decline as the economy was faltering. The Fed was so certain about the sluggish outlook it announced it would keep rates low until the end of 2014. The Fed isn’t likely to back off their outlook on one employment report but trading this morning in the FF futures market is marked to the Fed increasing the FF rate at the end of 2013. Markets now consider whether the Fed will increase buying of Treasury’s and MBSs. The Fed purchased $2.3 trillion of debt in two rounds of quantitative easing; at the conclusion of the Jan 25th FOMC meeting Bernanke said he was considering another round of QE if the economy isn’t recovering. After the employment report another easing move doesn’t seem likely now.

You can skip this paragraph if you have read it before. Greek officials are out this morning saying a deal is almost complete with investors to fend off defaults by getting another infusion of cash. For all of three weeks the deal has “almost” been completed. Markets have become numb to the continual news that has had no substance; everyone now is from Missouri.

At 9:30 the DJIA opened +110, the 10 yr note -27/32 at 1.92% +10 bp and MBS prices for 30 yr mortgages -12/32 (.37 bp). Technically, the 10 yr has some support at 1.93%, the high so far today.

At 10:00 the Jan ISM services sector index, expected at 53.0 frm 52.6, as released the index jumped to 56.8; every component was better. New orders at 59.4 frm 54.6, employment at 57.4 frm 49.8 and prices pd at 63.5 frm 62.0. The 10 yr and mortgages saw more selling while the DJIA popped up more.

Also at 10:00 Dec factory orders, thought to be +1.5%, increased 1.1% but Nov was revised to +2.2% frm +1.8%.

We have been noting that the 10 yr note had technical resistance at 1.80%, the low yield back in mid-Dec; it failed so far. The low on the 10 was 1.81%, triggered by the Jan employment this morning the 10 yr yield has moved to 1.93% up 11 basis points this morning. On numerous occasions I have commented that the 10 yr has a strong recent history that it can’t sustain long under 2.00% and moves from lows at 1.80% have all been swift. The note has technical support at 1.93%.

The data this morning; employment and the ISM services, were surprisingly stronger than markets were expecting. The 10 yr not is now likely to increase to test 2.00%. Better economic outlook today with the data and no safety moves to treasuries over Europe at the moment.