Interest rates soar on jobs data, putting housing at risk

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The Treasury bond market is in cardiac arrest today over the May employment report: Yields are soaring, dealing another blow to investors who’ve been hiding out in government bonds -- and threatening another big jump in mortgage rates.

If rising home loan rates price more buyers out of the market, sellers will have to respond by cutting asking prices. Anyone have a better idea?

The 10-year T-note yield has surged to 3.84% from 3.71% on Thursday. The 2-year T-note has rocketed to 1.25% from 0.96%. Yields now are the highest since mid-November.

Older bonds issued at lower rates lose value with every tick higher in market yields.

The net drop of 345,000 jobs last month was far smaller than the 520,000 that analysts, on average, had expected. Even though the unemployment rate rose to 9.4% from 8.9% in April because more people decided to look for work, many Treasury bond investors see the smaller job-loss figure as a sure sign that the recession is nearing its end.

And that raises the question of how soon the Federal Reserve will be forced to begin pulling back from its unprecedented easy-money policy.

The vast, vast majority of economists don’t believe the Fed would dare to tighten credit anytime soon. But bond traders reserve the right to be neurotic about the possibility.

In any case, with another huge auction of Treasury issues slated for next week, an upbeat employment report was the last thing the beleaguered bond market needed.

And by extension, it was the last thing the mortgage market needed: The average 30-year home loan rate rose above 5% this week for the first time since mid-March, underpinned by higher Treasury yields. Freddie Mac’s average loan rate jumped to 5.29% from 4.91% the previous week.

The May employment data offer real hope for an economic rebound. But can we have a lasting recovery if the housing market isn’t part of it?

-- Tom Petruno