Thursday's bond market has opened in positive territory again after a surprise jump in new unemployment claims. The stock markets have reacted as expected with the Dow down 98 points and the Nasdaq down 4 points. The bond market is currently up 10/32, which should improve this morning's mortgage rates by approximately .125 - .250 of a discount point.
Today's economic data came from the Labor Department who posted the 1st Quarter Productivity and Costs report along with last week's unemployment figures. The productivity index rose at a 1.6% annual rate, exceeding forecasts of a 1.0% increase. However, this is good news because more worker productivity allows the economy to grow at a faster pace while helping to keep inflation risks lower. Even though this was favorably news for the bond market, it is not what is driving this morning's bond buying and stock selling.
The influential data of the morning was the spike in unemployment claims. It was announced this morning that 474,000 new claims for unemployment benefits were filed last week, greatly exceeding forecasts of 400,000. This was the highest number of new claims since last August. It should be noted that some anomalies in the data could be a result of unusual circumstances such as the storms in the south, but it is thought that the impact they would have is likely minimal. Therefore, it looks as though the employment sector showed significant signs of weakness last week. And as expected, it has affected bond trading more than it usually does, partly because the monthly report is due out tomorrow.
April's Employment report will be posted early tomorrow morning, giving us a monthly look at the employment sector. This is where we may see a huge rally or major sell-off in the bond market and potentially large changes in mortgage rates. The ideal situation for the bond and mortgage markets would be an increase in the unemployment rate and a much smaller number of payrolls added to the economy during the month than was expected.
Just how much of an improvement or worsening in rates depends on how much variance there is between forecasts and actual readings, but I suspect slightly weaker readings may be built into the market already. That means if the report only matches or falls just short of forecasts, bond traders may be disappointed. This could turn out to be a wonderful day in the mortgage market (if the results are well below forecasts), but it also carries risks of seeing mortgage rates move much higher if the Labor Department posts stronger than expected readings. Current forecasts are calling for the unemployment rate to remain at 8.8% and that approximately 185,000 jobs were added during the month.
If I were considering financing/refinancing a home, I would.... Lock if my closing was taking place within 7 days... Lock if my closing was taking place between 8 and 20 days... Float if my closing was taking place between 21 and 60 days... Float if my closing was taking place over 60 days from now... This is only my opinion of what I would do if I were financing a home. It is only an opinion and cannot be guaranteed to be in the best interest of all/any other borrowers.
©Mortgage Commentary 2011