Mortgage rates headed lower on Thursday, erasing all the losses from Wednesday, following the release of a weaker-than-expected June Non-Farm Payrolls report. U.S. government bonds rallied on Thursday, as a mixed employment report, and especially a flat reading in wage inflation, drove investors to ultra-safe haven assets. The Bureau of Labor Statistics reported last week, that total non-farm employment rose by 223,000 jobs in June, a disappointing figure, which is below the consensus expectation of 233,000 positions. The unemployment rate declined by 0.2% to 5.3% last month, which marks a 7-year low, according to the latest data. However, wage growth, a key indicator for the Fed in determining the timing of a liftoff in short-term rates, remained flat in June. The disappointing reading bolstered speculation among investors that the U.S. central bank may delay hiking rates until 2016.
According to CME FedWatch, investors and traders are now betting on a rate hike to take place at the January 2016 Fed meeting. Before the release of the June NFP data, economists had forecast that a raise in interest rates would be announced at the September FOMC meeting this year. While the Fed’s plans to tighten monetary policy don’t have a direct effect on 30-year mortgage rates, it’s widely expected that when the liftoff occurs, rates on long-term mortgage loans will rise accordingly.
The yield on the benchmark 10-year treasury note dropped by 3 basis points and finished Thursday’s trading session at 2.40%. As mortgage rates tend to follow 10-year treasury bond moves, you may see slightly lower mortgage interest rates and borrowing costs at your lender on Monday morning. The 30-year treasury yield improved as well during Thursday’s trading session, closing the day at 3.19%.
Mortgage-buyer, Freddie Mac released the latest edition of its weekly Primary Mortgage Market Survey (PMMS) on Thursday, and according to the results, average interest rates on long-term mortgages hit news highs of the year in the week ended July 2. The national average rate on 30-year fixed mortgages ticked up to 4.08%, a 6 basis points increase compared to data from a week earlier. The same type of loan a year ago averaged a rate of 4.12%. The average rate on the 15-year fixed loan soared as well, coming out at 3.24%, which translates to a 3 basis points uptick compared to the prior week’s data. A year ago at this time, the 15-year FRM was hovering at 3.22%. Average mortgage rates on adjustable-rate mortgages (ARMs) were slightly higher as well last week, according to the federal agency’s data. The 5-year treasury-indexed ARM rose by 1 basis point to 2.99% last week, while the 1-year ARM was up by 2 basis points at 2.52%.
Financial company, Bankrate’s latest Mortgage Rate Trend Index for the wraparound week July 2-8 showed, that 59% of experts polled by the firm believe, that mortgage interest rates will next week. Only 8% of the respondents are expecting a drop in mortgage rates in the upcoming week, while 33% think that interest rates will remain relatively unchanged.
Now, looking at the upcoming week’s economic calendar, the ongoing debt crisis in Greece will most likely overshadow a light batch of U.S. domestic economic data. Greek voters rejected the terms of an international bailout as a result of the troubled country’s referendum held on Sunday. Now, the debt talks between Greece and its creditors are expeced to continue in the upcoming week, and any outcome will impact financial markets. For U.S. mortgage rates this means, that if Greece manages to reach a bailout deal with its creditors in a short time, interest rates would most likely jump. However, in case the debt talks break down and the bailout deal falls apart, it could possibly lead to Greece leaving the Eurozone. In a short-term, a financial instability in Greece could pave the way for lower mortgage rates in the U.S.
With regards to U.S. domestic economic data in the week ahead, on Monday, the ISM Non-Manufacturing Index for June will come out. The latest projections from economists suggest that the service sector activity index increased in June to 56.4, compared to 55.7 in May.
Another economic data which is set to be released on Monday is the Markit U.S. Services PMI for June. Analysts expect a figure of 54.9, which would suggest a slow down in the service sector.
On the second day of the week, we will get new international trade data that covers the month of May, as well as employment statistics through the Job Openings & Labor Turnover Survey, or JOLTS report for short.
The Federal Reserve will publish the minutes from its June 16-17 FOMC meeting on Wednesday, which will provide some insights on the Fed members’ stance on the U.S. central bank’s future monetary policy.
Some more data regarding the labor market will see the light of day later during the week, in the form of weekly jobless claims. The consensus expectation for the upcoming data is a slight drop in claims for unemployment benefits.
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