Rate Optimism Put To The Test by Jobs Report

There's a strong case to be made for the fact that interest rates had a sunny predisposition this week.  In practical terms, that simply meant giving more credence to rate-friendly news and trying harder to overlook unfriendly news. But the predisposition was put to the test in a major way with the week's most significant economic report today.  Nonfarm Payrolls (NFP) is the headline component of the Labor Department's Employment Situation report.  There are many reports that pertain to the jobs market, but this one is infinitely more important than the rest and this time around, NFP came in much higher than expected. While the chart of nonfarm payrolls looks range-bound, and while the job count has been much higher in the past few years, Friday's result of 272k represented an uncommonly large "beat" versus the median forecast of 185k, and a big jump from the previous reading of 165k. A move like this makes it seem like the labor market is too resilient to offer much help to the inflation problem (more jobs, more money, more spending, etc.).  Finally, the bond market's sunny outlook saw a cloud too big to ignore. With that, mortgage rates had their first (and only) motivation of the week to move higher.  But the chart above also illustrates the silver lining.  Specifically, even though rates jumped on Friday, they're not even halfway back to last week's highs, let alone the higher highs seen at the end of April.  Part of the justification for such resilience is that the bond market will defer to inflation data (and the Fed's interpretation of it) above all else in deciding how worried to be about impediments to lower rates.