Locking continues to be the safe play

Mortgage bonds are holding their ground today after the Bureau of Labor Statistics (BLS) Jobs Report came in slightly below the market’s expectations.  Job growth for the month of October came in at 161,000 new hires.  This was below the final estimates of 178,000.  However, the prior two month’s reports were revised up by a combined 44,000.  As for the Unemployment Rate, as expected it dropped from 5.0% down to 4.9%.  Since this was already expected, there was little market reaction.  However, the bond market did experience a sigh of relief that the report wasn’t above estimates.  Therefore, it could experience small gains afterwards.

A deeper look at the report shows the results weren’t as favorable as the headline numbers show.  In fact, it was reported that 197,000 died or left the workforce for one reason or another.  That means that the 161,000 new jobs created didn’t even keep up with the growth rate of the population.  However, the Hourly Earnings portion of the report was stronger than expected.  For many years, the challenge within the job market was stagnant wages.  That seems to have changed at this point.  On an annual basis, it showed roughly a 2.8% rate of growth.  As the job market gets tighter, we are seeing employers forced to give up profits to attract greater talent.  Although this is great for the labor force, it will pressure inflation higher and cause mortgage rates to increase as a result. 

At this point, we can continue to expect a rate increase when the Fed meets in December.  As for mortgage rates, the next couple of days will be very important.  Bonds have been in a strong downward trend since late August.  We are nearing the top of the trading range and will hopefully be challenging this level soon.  If bonds win, rates will benefit.  In the meantime, the risk of floating is elevated.  Therefore, locking continues to be the safe play.