Yesterday afternoon's web interview with Fed Chairman Powell led to chaos in the markets instead of the reassurances that we were expecting. His comments weren't surprising or overly negative for the bond market and mortgage rates. However, it is apparent that traders were looking for a much stronger assurance from him that inflation is not going to be a concern in the near future. He left enough room for speculation that inflation could be rising as soon as this summer. Market participants took that to mean that inflation will be rapidly rising in a couple of months.
That was a problem because inflation is the number one nemesis of the bond market. As inflation gets stronger, the value of a bond's future fixed interest payments become less appealing to investors. This causes the securities to be sold at a discount, pushing their yields higher to increase their appeal. Since mortgage rates tend to track bond yields, we saw big upward revisions yesterday afternoon.
Today's big news was the release of February's Employment report that showed much stronger than expected results. It revealed a 6.2% unemployment rate, down from 6.3%. The most surprising number was the 379,000 new jobs added back to the economy when analysts were calling for 190,000. Furthermore, January's payrolls were revised higher by 117,000, meaning the employment sector was much stronger than thought over the past two months. Average earnings rose 0.2%, matching expectations. Still, the payroll figures clearly make the report bad news for bonds and mortgage rates.
Next week doesn't bring us a lot of economic reports but they do include two important inflation indexes that will certainly draw plenty of attention. Also on tap are a couple of Treasury auctions that have the potential to influence bond trading and mortgage pricing. Monday has nothing of relevance scheduled. Look for details on all of next week's activities in Sunday evening's weekly preview.
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