Great economic news today and a revision of a lousy number last week caused bond prices to tank today and a turn for the worse in the mortgage rates.  The jobs report for September came out showing an increase of 110,000 jobs for the month, pretty good number for the economy and in line with what we have seen most of the past 15-18 months.  This would have been treated with a bit of a ho-hum in the market, but as happens every month with the jobs stats are released for the prior month, also released were any revisions to prior months' estimates--and this is what caused the bonds to jump off the cliff.  You may recall that in September huge news that made all the media was a loss of 4,000 jobs in August--the first month of job losses in the post-9/11 recession economy.  This created the environment for the Fed to plausibly link rate cuts to the economy.  Today we got a great big "Oooopppps!" from the Labor Department.  Seems their calculations were a bit off and instead of jobs shrinking by 4,000 in August they actually grew by 89,000.  Just a miscount of 90,000 workers or so.  This news showing there was no slow down in August but continued growth caused investors to strongly consider the Fed may reverse their rate cut in the near future and we were off to the sales department with our bonds.  Of course the other numbers for August, higher earnings, higher consumer spending, increased confidence all make more sense now.

 

As I have said before and will repeat here:  investors are not gauging the current economy with their "bets" or investments, they are predicting future performance and want to get there bet down on winning companies, sectors and investments. Higher prices and inflation means higher rates so predicting that investors will stay out of bonds causing their prices to drop (and rates to increase), so if investors feel the economy is still running strong and inflation is a concern they will back out of bonds and wait for the prices to drop before buying back in.  Think of the market as the NFL and Las Vegas.  An NFL team, let's say the Colts, looks good and have a great quarterback in Peyton Manning.  They are playing a relative patsy in the coming week--at the expense of my popularity with the good people of Miami let's say the Dolphins.  Las Vegas comes in and says the odds on the Colts winning are 2 to 5 meaning you have to bet $5 to win $2--not good odds.  What if on Friday afternoon the Colts announce that Manning will not play quarterback because of an injury?  Do you think the odds of them winning are the same?  No they are not and now Las Vegas says the chances of the Colts winning are 2 to 1, bet one dollar and you win two if the Colts do.  So one event to one person goes from risking money for a 40% return to risking money for a 100% return.  So it is on Wall Street--who do you think is going to win and is their quarterback healthy.  Today the answer was bonds are not going to win and the quarterback for the economy appears very healthy.

 

While conforming climbed this week the jumbo rate has softened slightly narrowing our gap between conforming and non-conforming: