The April jobs report was weak with the U.S. adding only 160,000 jobs against predictions of over 200,000 new jobs. But much to the surprise of experts, the U.S. bond market did not see lower interest rates as a result of this soft report.  This weak report will make it hard for the Federal Reserve to raise interest rates at their next meeting and rates may stay low for longer (good for new home buyers, but bad for savers).

On a related note, Jeffrey Gundlach, the widely followed “bond guru,” openly criticized negative interest rates this week saying that this central bank easing policy is akin to deflation. He, like many, feels that negative interest rates are a bad monetary tool and should be phased out. 

Focusing in on the mortgage market, we continue to remain biased toward locking in interest rates at the current levels. Interest rates are low and given that the weak job report in April did not further reduce mortgage rates, we don’t believe floating interest rates on new transactions is wise.

Equity markets closed out the week lower with the worst weekly sell-off since the earlier part of the year. Here in the U.S., the Federal Open Market Committee prepared statements that continue to ensure low interest rates. With inflation tame and anemic global economic growth, the chances for a June rate hike are currently pegged at 15%. The U.S. economy is performing well in some respects but continues to struggle in others. By the Fed’s own assessment, growth and consumer spending have slowed despite gains in income and employment and a strong housing market.

Mortgage interest rates remain attractive with the 10-year Treasury Note trading at 1.83%. As previously stated, we continue to be biased toward locking in interest rates with rates this low, with the awareness that interest rates could go lower given all of the economic and political uncertainty.

There was not much to report on the economic front this past week with most of the reporting focused on inflation. Inflation remains tame as evidenced by the Consumer Price Index (CPI) report released this past Thursday. The March Consumer Price Index (CPI) rose 0.1%, below the 0.3% expected. The Core rate, which strips out volatile food and energy, also rose by 0.1%, below the 0.2% estimated. Gas prices were higher last month, offset by lower costs for clothing, furniture and used cars, while the cost for housing, medical care, and cigarettes edged higher. Stocks continue to trade well and have gained back all of their losses from the beginning of the year.

The unintended consequences of negative interest rates have been front page news with the German 10-year bund reaching zero yield. Negative interest rates are challenging for pension funds and insurance companies. The inability to return adequate returns is forcing some European insurance companies to raise additional capital. Where this all leads to should be interesting as the prospect of negative rates is real and will force investors into buying riskier assets.

Here in the U.S., interest rates remain at historical lows. However, even given the higher yields in the U.S. versus countries such Germany or Japan, and the potential for our interest rates to go lower, we remain biased toward locking in interest rates at these low levels.

There’s not much to report this week by way of economic news. Interest rates globally remain at historical lows with the German 10-year bund nearly approaching zero earlier this week. Here in the U.S., interest rates remain very attractive.

On Thursday, Fed Chair Janet Yellen expressed her belief that the U.S. economy remains on solid ground and that the Fed may raise short-term interest rates later this year. Technically, mortgage bonds are near the 52-week highs and the 10-year Treasury Bond continues to trade well with a current yield of 1.71%. Though it’s possible interest rates could decline further, we are biased toward locking in interest rates at these levels.