Divided Government

During a week of election uncertainty, mortgage markets held relatively steady, as investors expect that control of the government will remain divided between the Democrats and the Republicans. In addition, the key labor market data came in roughly on target, and the Fed made no policy changes at Thursday’s meeting. Mortgage rates remained near record low levels.

While the final outcome of the election still remains uncertain at this time, investors expect that the Republicans will retain control of the Senate and Democrats of the House. For mortgage markets, divided government typically is viewed as positive, because it becomes more difficult to pass large new programs such as an additional stimulus package. Since funding government spending increases the supply of bonds, a lower level is more favorable for mortgage rates.

Friday’s highly anticipated monthly labor market report revealed that the solid rebound from unprecedented job losses caused by the partial shutdown of the economy has continued. In October, the economy gained a substantial 638,000 jobs, which was close to expectations. Particular strength was seen in hospitality and professional services. The economy has now recovered more than half of the 22 million jobs lost in March and April.

The big surprise was the shocking drop in the unemployment rate. From a level of 7.9% last month, it plunged to 6.9%, which was far below the consensus forecast of 7.7%. The data on job gains comes from actual figures provided by large companies, while the unemployment rate is based on a household survey conducted by the Labor Department. Although these two measures show similar results in the long run, it is common for them to display different levels of strength from month to month.

Thursday’s Fed meeting produced no surprises and had no impact on mortgage rates. As widely expected, Fed officials refrained from making any changes during the election uncertainty with financial markets performing smoothly. In fact, the statement released after the meeting was nearly identical to the prior one.

Looking ahead, investors will continue watching election results, covid case counts, and progress on vaccines. It will be a light week for economic data. The JOLTS report, which measures job openings and labor turnover rates, will be released on Tuesday. The Consumer Price Index (CPI) will come out on Thursday. CPI is a widely followed monthly inflation report that looks at the price change for goods and services. Mortgage markets will be closed on Wednesday in observance of Veterans Day.

Weekly Change
10yr Treasuryfell0.05
Fri11/12Jobless Claims