Yesterday mortgage-backed securities had their least volatile day since last week's "Black Wednesday" event.  MBS traded in a tight range most of the session, closing slightly higher than the previous day's "going out" marks.  With all the volatility recently, I have to say it was nice to have a calm day, especially since we ended up in the green.   Some of that volatility has returned to the market today but lender's rate sheets still look very similar to yesterdays.  With the ever so important Employment Situation report coming Friday, lenders will be very slow to pass along any improvements, but will be careful not to prohibit new production with overly protective pricing strategies.

We got some economic data this morning. The first report hitting newswires: weekly jobless claims.    The Labor Department reported that initial jobless for the week of May 30th came in right on expectations with 621,000 Americans filing for first time unemployment insurance, lower than last week’s revised reading of 625,000.  This is the fourth week in a row of lower jobless claims, a sign of a stabilizing labor market. Adding to that sentiment was continuing claims figures which moved lower for the first time since January, falling by 15,000 to 6.735 million in the week ending May 30th.  Continuing claims tracks the number of people who continue to file for benefits due to lack of finding a job. Immediately following the release, MBS moved considerably lower, taking back the small gains we enjoyed yesterday, and then some.    Economists say that the last thing to improve after a recession is jobs, so do you feel this report is showing a bottom in the loss of jobs?  If so, that is a sign of an economy on the rebound which will continue to apply pressure on mortgage rates to move higher.  However, we still have the pending layoffs in the auto sector as a result of the GM bankruptcy to account for.

We also received the Productivity and Costs report which measures the efficiency of our labor force and the labor costs of producing each unit of output.  A more efficient labor force can produce more goods with the same amount of labor,  which helps contain wage based inflation.  This is a quarterly reading which gets revised each month.  The prior print  came in at 0.8%. Economists surveyed were expecting a revised reading of 1.2%.  The actual reading came in better at 1.6%.  The unit labor costs also came in better, falling from the initial reading of 3.3% to 3%.   So, the cost to produce each unit is decreasing more than expected.  This report is very favorable for equities since higher productivity and lower labor costs will result in higher profits.  It is also somewhat favorable for MBS as wage based inflation is in check. 

Lastly, this morning the US Treasury Department announced the amount of treasury notes that they will auction next week.  We get $35bn in 3 yr notes, $19bn in 10 yr notes, and $11 bn in 30 yr bonds, which was what the market was expecting. As a consumer, when you do not have the cash to pay for an item, you borrow the money.  Well, when our government doesn’t have the money to fund their operations, they borrow the money by selling debt (Treasury bills, notesm and bonds).  The added supply on the market will apply pressure on treasury yields to rise which consequently forces MBS yields(mortgage rates) to move higher as well. 

Early reports from fellow mortgage professionals are indicating only slighter higher mortgage rates today.  Although some very aggressive lenders are still offering rates below 5.00% (very hard to get), the average par 30 year fixed rate mortgage has inched back up to the 5.125% to 5.375% range.  As always, to qualify for a par rate, you must have a FICO credit score 740 or higher, a loan to value of 80% or less and pay all closing costs including 1 point loan origination/discount/broker fee.  

As far as locking or floating…all is dependent on the nonfarm payroll numbers we receive tomorrow morning. With all the recent optimism that the end of the recession is here, a better than expected nonfarm payrolls report on Friday might spark a stock market rally which can pull money out of MBS to fund the buying of stocks.  If this happens, mortgage rates will continue to move higher as market participants liquidate their low yielding safe assets, MBS and Treasuries, and move the money over to the higher yielding stock market.

The market is expecting of a loss of 530,000 jobs and an unemployment rate of  9.2%.

For intraday updates, click over to the MBS Commentary blog.  If you are currently in the process of buying or refinancing and are unsure whether to lock or float, the MBS Commentary blog should be required reading for you today.  

If you'd like to follow intraday MBS and Treasury prices, please visit our Market Data page.  It is updated throughout the day.