jobs report sends interest rates up sharply
December 6, 2009 by admin
Home loan rates are moving higher, jumping sharply at the end of the week following a much better than expected non farms payroll report for the month of November. The key economic report which measures unemployment rate as well as the number of unemployed within the market had its best showing for the last 18 months and sent a jolt of optimism through the economy and into investors last week. Yields on bonds were up sharply following the news released early Friday morning. The yield on the ten year Treasury bond was up nearly twenty basis points for the week following the labor news, moving from the low 3.2% range earlier in the week to close on Friday at 3.48%. The sharp spike in bond yields carried over into mortgage interest rates, which jumped between .125-25% for thirty year loan terms with most national mortgage lenders on Friday. Long term rates for thirty year loans are now back above five percent, following a stint where they had dropped below five percent and reached their 2009 low mark, according to a report from Freddie Mac, released earlier in the week. The mortgage industry has been relatively immune to pressure from changes in the equity markets in 2009. The sharp increase in yields on Friday was a bit of a suprise as the equity market sold off almost all of its gains in late trading and finished the day up well below session highs. Long term rates are generally sensitive to changes in the equity markets, but 2009 has been a strange year to follow and predict the direction interest rates are heading. One thing that is almost 100% certain, is rates will be heading up in 2010.
The stock market could play havoc on long term rates over the next few months. Investors could dramatically shift their capital out of the bond markets if they believe a further equity market rebound is likely to occur in 2010. The job market and unemployment are traditionally lagging indicators for the health of an economy, as witnessed by improving GDP numbers despite unemployment continuing to expand. The future test will certainly be focused around job creation. Fridays report was a great signal that corporations may finally be done with rightsizing their way back to profitability, but provides little guidance to the probability these companies will again start to hire workers back into their companies and provide meaningful job growth for the future.
The short term prognosis is that interest rates do not appear likely to retest November lows anytime soon. The economy will likely continue to produce economic reports which meet the satisfaction of the investment community, which has shifted its focus to long term growth opportunities, realizing the worst of the recession is now likely over. Interest rates will be under pressure further into 2010 as the Federal Reserve exits out of the MBS market and more attention is placed on tightening the monetary policy. The free market equity/bond markets could lead to sharp move in long term mortgage rates, a challenge the real estate and mortgage industry is likely to closely monitor. Buyers who are on the fence should start to react with a greater sense of urgency if they are hopeful to take advantage of incredibly low interest rates.