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Market Update: Is it time to lock?

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Treasury Yields Up, Mortgage Rates May Follow

For those pondering whether to lock in a mortgage rate, the time has most likely come. Though Friday’s U.S. jobs report was underwhelming, it will have little effect on the policy outlook of Janet Yellen and her colleagues come December, when they plan to increase the federal funds interest rate. Couple that expectation with the European Central Bank’s recent move to taper off its bond-buying program, which has resulted in a steady increase of U.S. treasury yields throughout the week, and you have a scenario where historically low mortgage rates likely have nowhere to go but up.

The September jobs report wasn’t scintillating but not altogether discouraging. New jobs fell short of the 172,000 expectation, with 156,000 workers entering the labor force in September. However, payroll gains increased by 15,000 and average hourly earnings also ticked higher by .2% last month, bringing the total wage gain to 2.6% over the year. Though the unemployment rate increased from 4.9% in August to an even 5% in September, since 2011 the figure has been cut in half, indicating that the steady, albeit slow economic recovery from the 2008 recession is holding its ground.

Ahead of the decision to end quantitative easing, the European Central Bank announced its intention to wind down bond purchases to the tune of $11.2 billion a month. The news sent U.S. treasury yields on a steady climb, with the 10-year bond moving from 1.56% last week to 1.74% on Friday—a four-month high—and the 30-year note increasing from 2.32% to 2.49%. Though historically low mortgage rates remained unchanged from last week according to Freddie Mac, with the 15-year fixed at 2.72% and 30-year fixed at 3.42%, they are poised for an increase as treasury yields trend upward.

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