Mortgage Rate Forecast – May 5, 2011

Locking Stance: LOCKING      Mortgage Bonds: +19bp

As I mentioned earlier, I would not be surprised to see MBS prices reach their 200-day moving average, but that a corrective move is overdue according to the charts.

Jobless Claims got the day started with a jolt, coming in at 474K versus the 410K and up 43,000 from last week’s revised 431K.  That also sends the 4-week moving average up to 431.25K.   The Labor Department cited several factors for the dramatic jump.  The biggest factor is an adjustment timing for a spring break in New York state followed by a new emergency benefit plan in Oregon.  The third factor is the auto sector where claims related to retooling increased.  Note that possible layoffs tied to Japanese supply disruptions remain an uncertainty for the outlook.   Nonfarm Productivity was slightly better than expected at 1.6% versus 1.5% and Labor Costs were a little higher than expected at 1.0% versus 0.8%.  Ben Bernanke avoided discussing monetary policy during his speech.   Kocherlakota will be speaking later today, so we may not be out of the woods yet.

What does this mean for Mortgage Rates? Mortgage rates edged lower this morning for good reason, but we are now facing a major hurdle, one which mortgage rates will not likely clear on their first attempt, maybe even several or never.  That means that if you are still floating, stop.  The risk/reward ratio is no longer favorable and tomorrow’s Jobs Report could be the killer.

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