Incase you were wondering why rates are better today
and what caused the improvement in pricing…
Bonds are off to a tremendous start this morning in reaction to a very weak employment report.
The economy lost 80k jobs in March and the job losses in Feb we revised to -76k from a previously reported -63k. January’s number was revised lower, as well. In addition, the unemployment rate increased to 5.1%. The first quarter of 2008 has painted a bleak picture of the labor market.
So what does this mean for bonds and in turn mortgages and home sales?
You probably know that a poor employment report is good news for the bond market (as it was today). The main reason bonds like a poor employment report is that higher unemployment means a larger supply of labor in the economy. A larger labor pool means wages should remain low. Lower wages generally mean lower prices and lower prices equal lower inflation. Inflation eats away returns on long term investments. A lower risk of inflation also means a better chance of more Fed easing. So as long as the bond traders aren’t the ones losing their jobs they like higher unemployment.
In other words, when the stock market and its driving forces are hurting, Bonds are improving and vice versa.
*One issue that the bond markets haven’t seen in a very long time is that there is a massive reluctance to buy mortgage backed securities because of the instability of the housing market. What this means is that, just because the stock market takes a hit, there is still some investor reluctance to the traditional seeking of safer investments in the bonds market.
This is indeed a market like none of us have ever seen. My suggestion is that you team up with someone who not only watches the market but understands it, so they can pass along information that will be affecting you directly. For example, just like this information today and how the weak employment reports created a dip in rates and created a favorable market for home buyers and those in need of a refinance.
I hope this helps!
Courtesy of,
Mortgage Planner
