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Bad jobs report = great rates

By Polyana da Costa ·
Friday, June 1, 2012
Posted: 11 am ET

The disappointing May jobs report released this morning means bad news for the economy and for investors, but not for mortgage rates.
The unemployment rate inched up to 8.2 percent and the economy added only 69,000 jobs in May, says the Labor Department. Economists had expected at least 150,000 new jobs.
It gets worse: revisions from previous months show the economy added 49,000 fewer jobs than what the department originally reported.
That's not the type of news investors expected to see during the month that marks the three-year anniversary of the supposed recovery. The recession ended in June 2009, according to the National Bureau of Economy Research.
The just released report has already taken a hit on the stock market, which fell sharply after the dire news.
But amid the avalanche of bad economic news, there's good news for mortgage borrowers.
Already low mortgage rates have tumbled this week and might fall further as investors remain concerned about the prolonged European debt crisis.
Yesterday I mentioned the yield on the 10-year Treasury had fallen to a record low of 1.55 percent. Guess what? After the jobs report came out, the yield slid to 1.46 percent. Mortgage rates tend to follow the direction of treasury yields. Another indicator is the Freddie required net yield, which fell to 3.03 percent after reaching a low of 3.08 percent on Thursday.
Mortgage borrowers: this is your day. Enjoy the low rates while they last.

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Rahul P
June 02, 2012 at 8:20 pm

The relationship between 10 year treasury yield and mortgage rates is not as straightforward as it seems, especially in the extraordinary times we live in today.
I live in Northwest NJ and I have actually seen mortgage rates offered by TD Bank go up from 3.875% to 4.00% on June 1st even though this was a day when the stock market dived lower as did the 10 year treasury yield. Even before this happened, the 30 year rates were pinned at 3.875% even as the 10 year yield was moving lower.
The mortgage rates are indeed guided by the 10 year yield but this year they are also affected by the Fed's Operation Twist program as well as investors appetite for safe trades. Investors looking for safe trades are no doubt piling into 10 treasuries among other treasuries of different duration but those looking for higher yield are also piling into MBS backed by Fannie Mae and Freddie Mac. It is not easy to quantify how much each of these factors are affecting the mortgage rates. Of course, the credit profile of the lender and the area of purchase are also pertinent factors for the actual mortgage rate.
The mortgage rates unorthodox move on Friday (June 1, 2012) has me wondering if the downwards move of the mortgage rates is perhaps exhausted in short term. My feeling is that unless the Fed announces another program of Operation Twist or Quantitative Easing, the mortgage rates are done moving downward.