Mortgage Rates Take Wild Ride to 6-Month Lows William Chen - May 02 2015
Mortgage rates and many other areas of financial markets moved in shockingly counterintuitive ways after today's big jobs report. Nonfarm payroll creation stood at 288k in April, significantly higher than the 210k forecast. This is the single most important piece of economic data out each month, and when it's so much stronger than expected, that historically all but guarantees that rates will be heading higher. But that was NOT the case today! To give you an idea of how rare this is, a 78k 'beat' has never before resulted in a move like this. The most prevalently quoted conforming 30yr fixed rate for best-case scenarios (best-execution) is now solidly into 4.25% territory with some lenders already close to 4.125%!

How did this happen?
First off, we discussed some growing predisposition toward lower rates building in yesterday's trading session, but also warned that it didn't necessarily mean rates could still improve in the face of much stronger jobs report. Indeed this was the case AT FIRST today, as bond markets pushed rates significantly higher immediately following the report. But then, disconcerting headlines surrounding the Ukraine/Russia conflict began surfacing and increasing in severity, with the most notable being Russia's request for an emergency meeting with the UN Security Council.

It's not fair or accurate to say that rates are lower ONLY because of these headlines. In fact, markets often use these sorts of events as cover and justification for trading decisions that might otherwise seem to not make enough sense. But it's highly unlikely that rates would have been able to move lower today in the face of such a jobs report without help from this additional variable. At this point, it's a guessing game as to how much of the strength owes itself to that predisposition and how much owes itself to geopolitical risk. One of the only safe conclusions that can be made is that while we're now breaking out of the 2014 rate range, we would certainly remain in that range if we factored out the geopolitical risk.

The best policy with respect to your lock/float decisions continues to be one that respects the volatile possibilities inherent when geopolitics are having an effect. We haven't broken out of the 2014 range convincingly enough to conclude a new trend is forming, though we're close. Until we can confirm that, it makes sense to stay super defensive against the possibility that any gains could quickly evaporate, even if the move higher doesn't end up breaking the range on the other end.
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