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Borrowers dodge jobs report bullet

By Polyana da Costa ·
Friday, May 2, 2014
Posted: 4 pm ET

The labor market grew at a much faster pace in April than economists had expected and the unemployment rate fell to the lowest level since 2008, according to the employment report released today.

Yeah, but no

Such positive news had the potential to push mortgage rates up significantly today, but, luckily for borrowers, that wasn't the case.

"We didn't think we would get 288,000 jobs," says Paul Edelstein, U.S. director of financial economics for IHS Global Insight. "That's 90,000 more jobs than we were expecting and we weren't expecting the unemployment rate to fall."

Well-dressed for a jobless guy.

Well-dressed for a jobless guy.

The unemployment rate plunged to 6.3 percent from 6.7 percent. Once the report released the apparent good news, the yield on the 10-year Treasury note rose slightly, a sure sign that mortgage rates would also climb.


But quickly, investors started to digest details of the report and rates stayed where they were. Investors realized that the unemployment rate fell for the wrong reason. It dropped so significantly because the workforce shrank by more than 800,000 positions, to 155.4 million. Wages remained flat, too.

This is a positive jobs report, Edelstein says. But it's not as good as some seem to think.

"I don't think 280,000 jobs will be sustained, but we will probably stay above 200,000," he says. "I don't think interest rates are going to react to it that much."

And did rates react?

They haven't. But the issues in Ukraine might cause a move in interest rates. Amid the tension and continuous violence in Ukraine, President Barack Obama and German Chancellor Angela Merkel said Friday that they will seek additional sanctions against Russia if the situation in Ukraine doesn't improve.

Investors get all emotional

The political uncertainty made investors anxious on Friday and many moved their money into what they view as a safe haven, U.S. Treasury bonds. Whenever the demand for bonds increases, yields fall and so do mortgage rates. The yield on the 10-year Treasury reached a low of 2.57 percent today, the lowest level since February.

I wouldn't be surprised if mortgage borrowers see lower rates next week. But I also wouldn't bet on it. If you like the rate you are quoted today, don't gamble with it.

Follow me on Twitter @Polyanad.

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