04 Jun Great risk in floating
Mortgage bonds continued their steep decline yesterday, making the total damage up to 200 basis points within three trading days. This type of movement
creates havoc for potential home buyers, especially when they are still in the home shopping process and not yet able to secure an interest rate.
The losses yesterday alone were nearly 100 basis points from the highs of the day to the lows. This puts mortgage rates at highs not seen since
fall of 2014. Given the current trends and view of the bond chart, things could get worse before they get better.
Tomorrow we will receive the Bureau of Labor Statistics’ Jobs Report for new jobs created in the month of May. This volatile report could be the
catalyst to get bonds back on a healthy track or to cause the meltdown in the bond market to get even more destructive. Although May is typically
a month when many young workers find summer employment, the consensus is only for 210,000 new jobs. This seems like a very low bar has been set.
We could easily see a number in the 250,000 + range. If the report shows a number higher than expectations, we can expect the market to react
poorly to the report, causing mortgage rates to move even higher.
Given the volatility associated with tomorrow’s BLS report, we are going to maintain our locking bias. There is just too much risk in floating in
a market that is responding emotionally to any hint of improvement in the US or global economies. At this point, we should plan for the worse
and hope for the best.