Supply is a big issue today as investors are busy trying to make room in their portfolios for next week's record setting $71 billion borrowing spree by Uncle Sam. The government will be in credit markets conducting a three-part auction beginning on Tuesday with a $35 billion 3-year note auction, followed by Wednesday's $22 billion 10-year note auction and concluding with Thursday's $14 billion 30-year bond offering. The yield on all three securities has risen rather sharply over the past week or so - which may result in investor appetite proving to be stronger than many now expect. If so, next week's three-part Treasury auction may ultimately support steady to perhaps fractionally lower mortgage interest rates.
Next week's economic calendar will be relatively light through the first four days of the week - but will end with a bang when Friday's April Nonfarm Payroll figures are released at 8:30 a.m. ET. Most mortgage investors have already priced in expectations of a headline payroll figure indicating the economy lost 630,000 jobs last month, while the national jobless rate dropped to 8.9% from the March level of 8.5%.
With so many expecting such dreary news from the labor sector the risk (in terms of mortgage interest rates) is that the nonfarm payroll data proves to be stronger-than-expected. I'm not saying such an outcome is probable - I'm just saying it should be considered possible. The "so what" factor here goes like this -- Mortgage investors live in the future - not the present. The story from the labor sector doesn't have to improve much to induce investors to start incrementally ratcheting up mortgage interest rates in anticipation of stronger numbers to come.
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