Some very strange news this morning has the mortgage market at risk for a sharp reversal. The 10-year T-note bottomed at 4.54 percent and this morning is 4.7 percent and unstable, forcing mortgages to depart 6.25 percent, headed north.

The cause of this abrupt turn in expectation: in plain, nontechnical English, things don’t look as bad as the bond market had hoped.

On the first Friday of every month at 8:30 a.m. Eastern Time, the Labor Department releases the single most-watched datum of each month, the change in nonfarm payrolls in the immediately prior month. Everybody in bondland knows that the job market is the best proxy for overall economic growth and the threat of inflation; the Fed protests otherwise for political cover, but knows that inflation risks and containment ultimately involve the unemployment rate.

Bond traders this morning were on chair-edge, waiting for the job number to confirm their expectations for the slope of economic slowdown, the Housing Apocalypse troops hoping for something awful. Traders are used to revisions in the payroll numbers, highly technical analysis of companion changes in wages, hours worked, and industry-by-industry breakdown.

Instead, what we got was the Labor Department dressed as Clarabelle the clown, squirting lapel-flower, bleating horn and all, tossing a bucket of banana peels on to every trading floor on the planet.

The basic payroll number was sensible, a weak September gain of only 51,000 jobs, offset somewhat by an equivalent upward revision of August. Chaos followed immediately: Clarabelle announced a “benchmark revision” in its payroll accounting during the March ’05 to March ’06 interval.

It missed 810,000 jobs. Squirt. Blaaaaat.

An angry Steve Liesman on CNBC had exactly the right response: the largest economy in the world, the most important data, and we don’t have any idea how many people are at work?

Then, head-shaking analysis. The economy is in a lot better shape than thought — or at least has been. Might explain some of our little inflation problem, eh? Maybe there were some legitimate reasons for housing to run so strong? Futures markets pulled off the table any near-term likelihood of Fed easing, which had been the reason for a four-fifty ten-year and mortgages sliding toward six.

More head-shaking. The big revision is Jurassic Park — the new data still show a deteriorating job market in September, right? That thought has kept the lid on, but there is smoke pouring out from under: the unemployment rate fell to 4.6 percent, doing nothing for the Fed’s inflation fight. The most corrosive thought: if Clarabelle blew last year, why put any faith in the payroll numbers at all?

So, look to other data. Hiring may be slowing, but claims for unemployment insurance are, if anything, falling. Clarabelle did get one crucial crossfoot confirmation: the purchasing managers’ reports both slowed in September, the service-sector one damn near off the table, and service-sector employment was the deepest weakness in September payrolls.

The net of all this leaves the Fed on hold. OPEC’s new price floor is $55; there will be no inflation-suppressing crash in oil; and the Fed will have to stay on guard. If it’s on hold and guard, mortgages aren’t going lower.

The week’s best reading: Fed Vice Chair Donald Kohn at He makes plain the Fed’s uncertainty, his continuing puzzlement at low long-term rates, his lack of great worry about housing weakness, and his own guesswork: the economy may surprise on the weakside and inflation on the upside.

Lou Barnes is a mortgage broker and nationally syndicated columnist based in Boulder, Colo. He can be reached at

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