Mortgage bonds continue to drift lower today in advance of tomorrow’s Bureau of Labor Statistics Jobs Report. Janet Yellen’s speech yesterday, which was just two days ahead of the Jobs Report, leads us to believe that she may know something about the results of October’s job gains. Although she likely doesn’t have access to the numbers in advance of their release, she may have more knowledge as a result of her position. Her speech certainly hinted that the number may be strong. It’s difficult to say for sure. Like a foreshadowing in a high drama movie, it may be wise to assume that she has information that could cause mortgage rates to jump higher.
The market is anticipating for the Unemployment Rate to drop from its current level of 5.1% down to 5.0%. That passes a psychological number than many believed would be the turning point for the Fed to tighten interest rates. If the actual number comes in below 5%, you can assume that will also add significant headwind against mortgage interest rates. Also of importance will be the Average Hourly Earnings report. If wages are growing faster than anticipated, that typically is an indication of higher inflation rates to come. With inflation being the arch enemy of the bond market, that would also pressure mortgage interest rates higher.
Given the continued weakness in the bond market, combined with the significant risks associated with tomorrow’s reports, we will maintain our locking bias.