Mortgage Rates Await Data and Final Auction

Yesterday, the Department of Treasury auctioned $24 billion of 10 year notes. The prior day’s auction of 3 year notes was bid well, but foreign participation was extremely weak causing treasury yields and mortgage rates to rise Tuesday afternoon. The tide shifted yesterday though as the 10 year note auction saw the highest foreign participation on record. All lenders did reprice for the better after the results were released.

This morning the Department of Labor released the weekly Jobless Claims. This report tracks the number of Americans that filed for first time unemployment benefits in the prior week. Since our economy is driven by consumer spending, higher jobless claims indicates consumers will have less money to spend which is bad for corporate profits and stocks but generally helpful in keeping interest rates low. Last week’s report indicated a steep decline in claims following a couple weeks worth of increasing claims.

This report gives us three measures of unemployment claims:

- Initial Jobless Claims: totals the number of Americans who filed for first time unemployment benefits in the previous week
- Continued Claims: totals the number of Americans who continue to file for benefits due to an inability to find a new job
- Extended and Emergency Benefits: totals the number of Americans who have exhausted their traditional benefits and are now collecting extended and emergency benefits which can last as long as 99 weeks

Here are the results:

- Initial Jobless Claims: -36,000 to 383,000, the lowest level since July 2008 vs estimates of 411,000. Prior week was revised worse to show 4,000 more claims. Weekly claims are quite volatile so market participants track the 4 week moving average fell to 415,500 from a revised 431,500.
- Continued Claims: -47,000 to 3.888million vs estimates of 3.90million. Prior week’s data revised worse from 3.925million to 3.935million.
- Extended and Emergency Benefits: +84,000 to 4.64million.

Something I find odd is no mention in the report that bad weather kept people from filing for claims last week. Each time we get a bad report on jobs, the pundits blame it on bad weather. Well, today we got a good report of fewer Americans filing for unemployment, but wasn’t much of the country under snow last week which should have prevented many from being able to file? Here in Dallas, we had snow on the ground all week last week which kept most of the city shut down from Tuesday through Friday. Market participants might be taking this into consideration as the fixed income sector is holding up quite well following this report when you would expect it to move much lower. Additionally, one good report does not make a trend.

At 1pm, the Department of Treasury will release the results of today’s auction of $16 billion of 30 year bonds. Strong demand for our nation’s debt is one of many factors that have helped to keep mortgage rates extremely low. If today’s final auction of the week is met with similar demand as yesterday’s 10 year auction, mortgage rates should benefit. I believe the recent spike in treasury yields should help draw strong demand which could lead to better mortgage rates later today.

Lender rate sheets are worse than those from yesterday afternoon. The par 30 year conventional rate mortgage is in the 5.00% to 5.25% range for well qualified consumers. The par 15 year fixed rate mortgage is in the 4.25% to 4.50% range. To secure a par interest rate on a conventional mortgage you must pay all the closing costs including an estimated one point loan origination/discount/broker fee. You may elect to pay additional points to buy the rate lower, or pay less in closing costs and take a higher rate.

Stock markets around the world sold off last night and the US stock market has opened lower. As stocks move lower, money tends to flow into the bond market. I also feel the auction will be well received which should also be supportive of improving bond prices and lower consumer borrowing costs later today.