Mortgage rates worsened today, giving up all the gains from the last two days, as government bonds sold off during Wednesday’s trading session. While the bond market enjoyed some nice gains in the beginning of the week, treasury notes sold off today on renewed optimism that Greece’s debt crisis might be resolved soon. The latest batch of domestic economic data that came out this Wednesday, which appeared to be stronger-than-expected, also contributed to the weakness in the bond market. Investors flocked to riskier assets and demand for ultra-safe fixed-income securities, such as treasury bonds, declined today. All this means, if you haven’t locked a rate in the beginning of the week, you will likely see higher mortgage rates at your lender this mid-week.
The benchmark 10-year treasury yield closed the trading session at 2.43%, which translates to an 8 basis points uptick compared with data from Tuesday. The yield on the 30-year treasury note was higher as well, finishing the trading day at 3.20%, compared with 3.11% a day earlier.
On Wednesday, a number of domestic economic data saw the light of day, however they had limited impact on markets, as headlines on Greece’s ongoing debt issues overshadowed the impact of today’s domestic data. A fresh report from ADP released Wednesday showed, that the private sector added 237,000 jobs in June, the most in six months, a much better figure compared to the consensus expectation of 218,000 positions. May’s ADP Employment figures were revised up from the initially reported 201,000 jobs to 203,000.
Economic activity in the U.S. manufacturing sector eased to 53.6 last month from 54.0 in May, according to Markit’s U.S. Manufacturing Purchasing Managers’ Index for June. This marks the lowest reading for the Markit PMI since October 2013. The financial data firm reported that manufacturing activity expanded at the slowest rate over a year and a half, which could be a sign that the economy is slowing again. Still, any reading above 50 signals expansion in the sector.
Another manufacturing data came out today, in the form of the ISM Purchasing Managers’ Index for June, which revealed that factory orders and employment reached their highest reading last month since December 2014. The composite PMI came in at 53.5 in June, an uptick of 0.7 percentage points compared to May’s data. This figure is slightly better than economists’ forecast (a reading of 53.2). The employment component of the index ticked up to 55.5 in June, an improvemens of 3.8 points compared to May’s figure.
Following a 2.1% jump in April, U.S. construction spending increased 0.8% in May, the Commerce Department reported on Wednesday. Economists had projected an advance of 0.5% for May’s data, so the current figure beats expectations. This is a strong report, suggesting that activity in the housing market has been accelerating in the second quarter, following a weaker performance earlier this year.
Although, the market has been mainly headline-driven in recent days, this week’s most influential domestic economic data, the June Non-Farm Payrolls report, has the potential to impact mortgage rates big time. This all-important jobs report is scheduled for a release on Thursday, one day earlier than usual, due to the July 4 holiday. If the upcoming NFP data comes with some strong figures on Thursday, mortgage rates will likely spike. A strong jobs report would also provide further evidence that the labor market is improving steadily, which may suggest for the Fed that the economy can absorb a lift in rates later this year. However, if the data misses expectations, mortgage interest rates could be the beneficiary.
Nevertheless, even if June’s jobs report turns out worse-than-expected, it’s hard to imagine a scenario where mortgage rates would head significantly lower. Lenders have been been more conservative these days, when it comes to repricing their rate sheets with lower rates, and the simply reason for that is extreme market volatility.
In the short-term, if Greece’s debt issues don’t get resolved in the near future, we could see lower mortgage rates in the U.S. But in the long-term it’s more reasonable to expect that mortgage interest rates will rise. It appears that the economy is gaining momentum in the second quarter and the Fed still plans to lift short-term rates once or twice this year. While it’s expected that the initial rate hike will be, at least partially, priced into bonds once the liftoff happens, but mortgage rates could still face an upward movement when the actual hike occurs. With that in mind, it’s more likely that 30-year mortgage rates will hit the 4.25%-4.5% range at the end of the year, than seeing them falling below 4%.
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