**Stronger-Than-Expected Jobs Report Sparks Significant Surge in Mortgage Rates**

Today’s eagerly awaited jobs report exceeded expectations, leading to notable turbulence in the mortgage market. Consequently, the average 30-year fixed mortgage rate experienced one of the largest single-day jumps in recent memory, spiking from 6.26% to 6.53%. Such a substantial increase of more than 0.25% in a single day is highly unusual, though not entirely unprecedented due to the complex nature of the mortgage bond market.

A key factor influencing daily mortgage rate fluctuations is the trading of mortgage-backed securities (MBS). Unlike U.S. Treasury bonds, where investors are guaranteed long-term payment until the maturity date, MBS are inherently unpredictable. This unpredictability stems from the fact that mortgage borrowers can sell or refinance their properties, thereby paying off loans earlier than anticipated. This element of uncertainty significantly impacts MBS investors' decisions.

MBS are offered in increments of 0.5%, with mortgage rates fitting into specific rate "buckets." The configuration of these buckets means that rates from 6.75% to 7.125% could be classified into two different buckets, depending on the prevailing market trends. Investors tend to favor the bucket that is less susceptible to early refinancing when interest rates drop, as this reduces the risk associated with their investment.

The intricacies of these buckets can lead to situations where the highest allowable rates in a lower bucket generate more profit for mortgage lenders than the lowest rates in a higher bucket. For example, a rate of 6.625% this week brought in about 10% more profit for a lender compared to a rate of 6.75%. This higher profitability enables lenders to reduce upfront costs, making options like the 6.625% rate more attractive than the slightly higher 6.75% rate, which would incur greater initial expenses for borrowers.

These structural complexities in the MBS market explain why mortgage rates can experience sudden and significant shifts. When rates approach the threshold of the next lower 0.5% bucket, the highest rate in that bucket often becomes the preferable option, driving quick rate movements across specific ranges. Therefore, the stronger-than-expected jobs report has created a ripple effect, leading to a sharp uptick in mortgage rates that reflects the nuanced economic dynamics within the mortgage bond market.