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Rates Rise on Strong Employment Numbers

July 18, 2016

The employment numbers for June came in much stronger than anyone expected. Payrolls were up a whopping 287,000 for the month.

This was a welcomed turnaround compared to the dismal 38,000 payroll increase in May. Somewhat paradoxically, the unemployment rate also rose, by two-tenths of a percent to 4.9%. This is actually good news. It reflects an increase in labor participation and a decrease in the number of discouraged workers.

Good news generally manifests in higher interest rates. Good news motivates investors to sell haven investments, like U.S. Treasury securities and precious metals, and buy riskier investments, like stocks. Over the past week, the yield on the 10-year U.S. Treasury note has risen 15 basis points. Stocks are again trading near an all-time high.

Mortgage rates, most notably those on the 30-year fixed-rate loan, also moved decisively higher. This is no surprise. As the yield on the 10-year Treasury note goes, so goes the yield on mortgage-backed securities, and so goes mortgage lending rates.

For the immediate future, it seems that mortgage rates will start slowly rising. We’d say either flat to slightly higher. Everything looks calm and steady (relatively speaking). Rates rarely move lower when things are calm and steady.

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