Mortgage Rates



A little weaker in the bond market early this morning with weekly jobless claims declining more than expected; forecasts were for claims to fall about 13K. As reported weekly claims declined 27K to 365K after last week’s claims were revised up by 4K from what was reported. Continuing claims fell a little at 3.276 mil frm 3.329 mil; the four week average increased to 388,50 frm 382,750 as claims increased the past few weeks. The decline in claims makes it more likely that the surge over the past three weeks was caused by the timing of the Easter holiday rather than a deterioration in employment. On the release the 10 yr note lost 7/32 to 1.95% +2 bp, mortgage prices opened unchanged then dropped 3/32 (.09 bp) at 8:45.

Q1 productivity was -0.5% as expected and Q1 unit labor costs were up 2.0% less than +2.8% expected. The productivity of U.S. workers fell indicating businesses are reaching the limit of how much efficiency they can wring from the workforce.

At 9:30 the DJIA opened fractionally higher, up 4 points even with Europe’s markets rallying and the better claims report. The 10 yr at 9:30 =6/32 at 1.95% +2 bp and MBS 30 yr prices -3/32 (.09 bp).

Nothing significant from the ECB meeting; European Central Bank President Draghi said policy makers didn’t discuss cutting interest rates today, and the economic outlook has become more uncertain. He spoke at a press conference after the ECB kept its main rate at 1.0%. Draghi is taking lessons from Bernanke on central bank speak; saying the economic outlook in Europe is uncertain suggests he has been sleeping recently, the outlook for Europe’s economy is clear, it is in recession and likely to decline further. Draghi said at a press conference in Barcelona today that there has been “significant progress” on the fiscal front. ?

At 10:00 the very key ISM services sector index, expected at 55.5 frm 56.0, immediately prior to the data the 10 yr, mortgages and the stock indexes traded unchanged. The index was weaker at 53.5; new orders at 53.6 frm 58.8, employment 54.2 frm 56.7 and prices pd at 53.6 frm 63.9. The immediate reaction to the weak report (the lowest index this year) pushed stock indexes down, the 10 yr came back to unchanged and MBS prices -3/32 (.09 bp) at 9:30 climbed to +2/32 (.06 bp), increasing .15 bp frm where morning prices were trading.

Tomorrow the April employment data is likely to keep UIS financial markets in check with not much change by the end of the day. Positioning ahead of employment data is a risky situation given the volatility and many times the data is well off what was thought. Traders usually don’t initiate new trades ahead of employment and investors normally don’t buy or sell much the day before the data.

The 10 yr note still unable to break 1.90% but not looking like rates want to increase. MBS prices also holding under their resistance at 104-3/32 (104.09 bp). (currently at 103-29/32, (103.90 bp)