Rates Rally Following Strong Demand at Treasury Auction

The interest rates markets rallied yesterday following weak manufacturing data and strong demand for our nation’s debt. Mortgage backed securities did open the day higher, but most of the price gains came following the release of the results of yesterday’s 5 year note auction. The demand for our nation’s debt was much higher than recent auctions indicating the “flight to safety” bid is still intact. At day’s end, MBS had closed at their highest price ever which allowed lenders to reprice better passing along some of the price gains. To remind readers, as the price of MBS move higher lenders are able to offer lower mortgage rates.

The only economic data release this morning was the weekly Jobless Claims.

Released by the Department of Labor, this report provides three timely metrics on the health of the labor market:
1. Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week. Today’s report will show claims for the July 24 week.
2. Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job. This has a 2 week lag, so today’s data is for the July 17 week.
3. Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now receiving extended and emergency benefits. This has a 3 week lag, so today’s data is for the July 10 week.

Since our economy is driven by consumer spending, market participants track employment data to get a gauge on economic momentum. Higher jobless claims imply less consumers have jobs and therefore less money to spend. This is a negative for the economy but generally helpful in keeping consumer borrowing costs from rising.

Here are the results:
1. Initial Jobless Claims: -11,000 to 457,000 vs. estimates for a read of 459,000. Prior week’s data was revised worse to show 4,000 more claims. AS EXPECTED
2. Continued Claims: +81,000 to 4.565 million vs. estimates for a read of 4.55 million. AS EXPECTED
3. Extended and Emergency Benefits: -269,000 to 3.66million. On July 22, President Obama signed into law a bill restoring benefits to many that were cut off. The bill is retroactive to those that were cut off when benefits expired on June 2 and extends through November up to 99 weeks of unemployment assistance.

At 1pm, the Department of Treasury will announce the results of today’s auction of $29billion of 7 year notes. Strong demand for our nation’s debt is one of many factors that have contributed to record low mortgage rates. Tuesday’s auction of 2 year notes was not met with strong demand but yesterday’s 5 year note auction went very well. Since the life of a mortgage is much closer to 5 years than 2 years, it had a impact on mortgage rates. Hopefully that will continue today. The supply of U.S debt has been declining over the last few months as our nation needs to borrow less money to fund spending. Today’s supply is $1Billion less than last month’s offering and less supply of debt is positive news for both Treasury yields and mortgage rates.

Lender rate sheets are improved this morning when compared to the rate sheets released yesterday morning. The par 30 year conventional rate mortgage remains in the 4.375% to 4.625% range for well qualified consumers. There are a few aggressively priced lenders offering 4.25% but it will cost you more. If you feel your credit profile is less than stellar, you should still be able to get a rate no higher than 5.00% to 5.25%.

I continue to favor locking all loans closing within the next 30 days as i see very little benefit in floating.