Locking Bias

The Bureau of Labor Statistics released their estimate of new job creations for the month of January this morning.  It came in at 151,000, which was lower than estimates of 188,000.  However, the Unemployment Rate surprisingly moved from 5% down to 4.9%.  This is the first time since 2008 that we have had an unemployment rate below 5%.  Another upward surprise was the Average Hourly Earnings report showing an increase of 0.5% and 2.5% on a year-over-yearly basis.  This was three tenths higher than expected.  Since higher hourly earnings creates upward inflationary pressure, this was not good news for the bond market.  As a result, mortgage interest rates are being pressured higher this morning.

The improvement in mortgage bonds appears to have stalled.  A look at the charts shows that there has not been any real improvement overall in the past four days.  Further, the 10 Year Treasury Note Yield has also stalled.  This is a dangerous sign for the near term direction of mortgage interest rates.  It seems likely that bonds will move sideways out of the upward channel that has driven mortgage rates lower since the Federal Reserve increased short term interest rates.  The future direction of mortgage rates will also be heavily dependent upon the stock market.  If stocks head lower, mortgage bonds will likely be the beneficiary.  We will have to wait and see.

With bonds appearing to have stalled, the risk of floating is elevated.  Therefore, for loans needing to close in the near term, a locking bias is the safe play.