The yield on the U.S. 30-year bond touched2.51% this morning – the lowest return on this security on record going back more thantwo centuries. The drivers behind this record setting performance by the 30-year bond included the dismalMay nonfarm payroll report, weak Chinese economic news and the persistent background threat of a major financial catastrophe for one or more members of the EU looming on the near-term horizon.

The global economic weakness manifested itself more directly here at home as the Labor Department reportedMay nonfarm payrolls grew by a lackluster 69,000 new jobs last month – the smallest month-over-month gain this year. Compounding this already weak report, March and April figures were revised down by a combined 49,000. A separate survey of U.S. households showed the national jobless rate ticked higher by .01% to 8.2% — the first increase in this measure since June 2011.

No matter how one attempts to “slice-and-dice” today’s employment news — the story remains the same. Nearly three years after the Great Recession was declared officially over — the economy has failed to gain traction. Uncertainty related to Europe’s debt crisis, the potential for steep U.S. tax hikes this year and major government spending cuts next year have all combined to retard job growth. Most economists estimate it takes the creation of 125,000 jobs per month simply to keep pace with the number of new workers entering the labor market every month. To put a meaningful dent in the number of unemployed Americans requires the creation of a minimum of 250,000 new jobs per month.

The poor state of the labor market will put renewed focus on the Fed to add more grease to the recovery skids. Fed Chairman Bernanke is scheduled to testify before the Joint Economic Committee of Congress at 10:00 a.m. ET on Thursday, June 7thand the Federal Open Market Committee will meet in a two-day session June 19th and 20th. The pressure will be on the Fed “to do something” to get the economic engines firing on all cylinders once again.

“Operation Twist” (the $400 billion Fed bond-buying program designed to reduce to long-term interest rates — including those for mortgages) is scheduled to expire at the end of this month. The probabilities have now dramatically shifted in favor of an extension of this program at the June Federal Open Market Committee meeting and there may even be serious talk about the deployment of another round of fiscal stimulus in the form of the “QE3.” The short version of this otherwise long and multi-chaptered story is that support for steady to perhaps fractionally lower mortgage interest rates has just grown significantly stronger.

Looking ahead to the coming week Fed Chairman Bernanke’s appearance on Thursday morning before the Joint Economic Committee of Congress will easily trump Tuesday’s Institute of Supply Management’s May Manufacturing Index and Thursday’s jobless claims report for the week ending June 2nd as the most dominate event on the calendar.

Mortgage Rates as of Friday June 1, 2012 ( purchase transactions )

30 day rate locks, subject to credit score and loan to value edits

FHA

30 year fixed 3.50% 0% origination fee

3.25% .50 origination fee

Conventional

30 year fixed rate 3.50% .25% origination fee( 30 day lock )

3.375% .75% origination fee

15 year fixed rate 2.875%

5/1 ARM 2.375%

7/1 ARM 2.75%