Market Overview – 06/05/2009

Mortgage backed securities (MBS) prices are lower – Mortgage rates are higher. Employment in May was unexpectedly and significantly less negative than in recent months, non-farm payrolls fell only 345K after a revised 504K loss in April. Revisions added 82K to figures for April and March. The manufacturing sector again showed significant job losses, while weakness in the construction sector moderated. The unemployment rate increased to 9.4%, highest since 1983, as a surge in people entering the labor force was responsible for the unexpected increase. The U.S. has lost 6 million jobs since the recession began 17 months ago. Wage inflation remains very soft as average hourly earnings rose only 0.1% in May and are 3.1% higher than last year. The average work week shrank to 33.1 hours from 33.2 hours, which brought down the average weekly earnings also. The threat of inflation increased due to record supply and rising commodity prices. The U.S. will add to the record supply with $65 billion in notes and bonds to be auctioned next week. Supply concerns were the primary reason for yesterday’s decline in MBS prices. Crude oil climbed to $69.52 a barrel, highest since November 5, and gold has rallied from $682 an ounce in October to as high as $984.

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