Eventhough price action in the secondary market was choppy and economic reports were better than expected, conventional 30 year par mortgage rates held steady near 5.00% as prices of mortgage backed securities managed to end the week higher.   

The calendar is busy this week with Friday providing the most noteworthy event...the Employment Situation report.  

The only data to digest this morning was the Chicago Purchasing Managers Index. This report provides econ watchers with a look into the strength of business conditions in and around the Chicagoland area. Readings above 50 imply the sector is growing while readings below 50 indicate contraction.  The  last two releases of this report have shown conditions to be improving, this month economists surveyed were expecting that trend to continue with a near breakeven reading of 48.0.   The report indicated that business conditions in the Chicago area were better than expected, registering a read of 50.0, implying no growth or contraction. Markets didnt have much of a reaction to this tier II data.

On Tuesday, ISM Manufacturing data, construction spending, and the FOMC minutes hit the news wire. The Institute of Supply Management(ISM) surveys over 300 manufacturing firms on the strength of business conditions.  This report is very similar to the Chicago PMI in that readings above 50 indicate growth while readings below 50 indicate contraction.    This survey has shown that manufacturing conditions continue to improve with the last five readings each coming in better than the prior month indicating the current recession may be ending.   Economists surveyed are expecting this report to reflect the first positive reading of growth since 2007 with a 50.5.

On Wednesday we get Factory Orders and a precursor to Friday's Non-Farm Payroll report with the release of ADP Employment data.  This release measures the number of jobs lost or created on a monthly basis by private companies.    One large difference between the ADP and the official Employment Situation report is that the ADP numbers do not take into account government jobs.   In addition to this report we also get Productivity and Costs from the U.S. Department of Labor.  This data shows how efficiently our labor force is producing the ation’s goods and the labor costs of producing each unit of output. 

At 2pm eastern on Wednesday, the Federal Open Market Committee will release the minutes from the prior fed meeting held three weeks ago.  As always, most of the information contained in the minutes will already be known, but market participants will thoroughly review for any hints at future monetary policy and the Fed’s economic outlook.    FOMC meetings are held eight times a year and at these meetings our nation’s monetary policy is set.   The release of these minutes always has the potential of moving the markets.  Matt and AQ will cover this topic in detail on the MBS Commentary blog.

Thursday brings us a couple economic reports, weekly jobless claims and ISM non-manufacturing index, but these reports will take a back seat to the Employment Situation data coming on Friday.  The highest impacting event taking place when the U.S. Department of Treasury announces the size of next weeks's Treasury auctions.  The Treasury Department plans to auction off 30 year bonds, 10 year notes, and 3 year notes. Even though our government has issued record amounts of Treasuries to fund operations, it seems investors continue to have a strong appetite for our debt.  The market's strong demand for risk averse assets is helping keep mortgage rates at very attractive levels. 

Friday brings us the official government numbers on our nation’s Employment situation.   This report gives us four different measures.  First is the number of jobs lost or created from the prior month.   Recent reports have shown in easing in the number of jobs that are being lost on a monthly basis.  Economists surveyed are expecting this trend to continue with only 200,000 jobs lost from the prior month.   That will be a substantial improvement from early in the year when headlines were in the range of 600,000 job losses.   The next measure is our nation’s official unemployment rate.  Last month’s report surprised almost everyone with the unemployment rate dropping to 9.4% when most expected to see an increase.  Economists surveyed this month are expecting the rate to move higher to 9.6%.  More jobs lost and/or a higher unemployment rate than expected usually benefits the fixed income sector.   The final two measures from this report shows market participants the average hourly wage and work week.   If workers are making more money and working longer hours, they should have more money to spend into the economy, thus this data serves as a forward looking indicator of consumer spending.

To read morn on the week ahead, click here.

Reports from fellow mortgage professionals continue to show the par 30 year conventional rate mortgage in the 4.875% to 5.125% range for well qualified consumers.  In order to secure a par rate for a 30 year fixed rate mortgage you must have a FICO credit score of 740 or higher, a loan to value at 80% or less and pay all closing costs associated with your loan including one point loan origination/discount/broker feel.   If your credit score is lower you will either have to pay additional fees to secure a par rate or take a higher interest rate. 

Mortgage rates have held near 5% for the longest time since May. Unfortunately there still seems to be no incentive to push mortgage rates any lower.  If Friday’s job report comes out better than expected, stocks may rally and mortgage rates could rise quickly. That said, I am going to continue to caution on floating.  If you are currently trying to determine whether you should lock or float, I would like to hear from you in the comments section.  If you are floating, why?  Do you feel rates would move lower and how low would they have to go to get you to lock?