Strong Job Gains3/13/2015
STRONG JOB GAINS
Friday's stronger than expected Employment data was great news for the economy, but it was negative for mortgage rates. As a result, mortgage rates ended the week higher.
The Employment report revealed strength nearly across the board. Against a consensus forecast of 240K, the economy added 295K jobs in February. The Unemployment Rate declined from 5.7% to 5.5%, the lowest level since May 2008. Stronger job gains raise future inflationary pressures, which is not good for mortgage rates. The reaction might have been even larger, but wage growth was lower than expected.
For most of last year, investors speculated that the European Central Bank (ECB) would implement a sovereign bond purchase program, similar to the US quantitative easing (QE) program. In anticipation of this added demand for bonds, yields around the world declined. In January, the ECB formally announced that it would purchase 60 billion euros ($66 billion) per month of public and private bonds beginning in March. On the news, global bond yields fell even further. Thursday, the ECB announced that the exact start date will be March 9. Much like the experience in the US, most of the effect on interest rates from QE took place well in advance of the actual start of the program, and little reaction is expected when the bond purchases begin on Monday.