A weak jobs report fails to rally bonds, and mortgage pricing is still under pressure.

Quick read on where we stand this morning. September nonfarm payrolls came in at just 29,000, well short of expectations, and the unemployment rate ticked up to 4.2%. That is the kind of report that would normally spark a strong rally in bonds. It did not. Yields gapped lower on the first reaction, but the move faded quickly, and the 10 year Treasury is now sitting at 5.243%, essentially unchanged on the day.

UMBS 6.0 is at 98.40, up 0.09 on the day, but the coupon has already slipped about a quarter point from its early highs, and lenders have flagged more reprice risk this morning. The 2s/10s spread is 43.7 bps. Traders now see little chance of a Fed rate hike in October after the weak data, but with the 10 year still above 5.2%, that has not translated into lower mortgage rates.

August factory orders came in slightly below expectations, and crude oil broke below support on stockpile release headlines, which has taken some pressure off inflation expectations. With the jobs report out of the way, there are no other major releases today, so the market will be left to digest the data heading into the weekend. The path of least resistance for rate sheets is flat to slightly worse unless bonds can build on the early gains.

Today's News and Market Impact

The headline is the gap between the data and the reaction. Payrolls rose by only 29,000 and unemployment moved up to 4.2%, yet the 10 year yield is flat near 5.24%. Bonds are not rewarding weak growth data because yields are already elevated and the market remains focused on supply and inflation risk. Until yields show a genuine bottom, a soft data point alone is not enough to count on lower rates.

Benchmarks

10-Year Treasury: 5.243% ▲ (up 0.2 bps), price 95.236
UMBS 6.0 Coupon: 98.40 ▲ (up 0.09)
2s/10s Spread: 43.7 bps

Lock or Float?

15 Days: LOCK. Pricing is under reprice risk today and the 10 year has not held its early gains. Protecting your rate now removes the downside.

30 Days: LOCK. One weak report has not changed the trend. Yields are still near cycle highs with no confirmed bottom.

30-45 Days: LOCK. There is no confirmed reversal in yields yet. A single data point is not a bottom, so lock until one forms.

45+ Days: LOCK. Floating this far out requires a confirmed turn in yields, and the market has not shown one. Stay locked until it does.

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Drew Fisher, NMLS #44061 | Pure Rate Mortgage LLC, NMLS #2578474. This commentary is for educational purposes and is not a commitment to lend or a guarantee of any rate or term.

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