Mortgage rates improved last week during a holiday-shortened trading week. The mortgage bond markets closed Monday for Christmas, and closed early Friday afternoon. Trading volume was light all week-long, which contributed to a year-end rally.

Mortgage bonds made their largest one-week gain in two months as conforming mortgage rates in California fell to new lows nationwide.

Because most of the improvements transpired Wednesday and Thursday, Freddie Mac’s weekly mortgage rate survey failed to capture the action. The survey’s poll of more than 125 banks across the country “closes” Tuesday.

As a result, Freddie Mac reported mortgage rates rising to 3.95% with an accompanying 0.7 discount points plus closing costs, where 1 discount point equals one percent of your borrowed amount. However, those rates represented the high point for the week.

By Friday, conforming loans “with points” were noticeably lower as compared to Freddie Mac’s weekly survey. Loans without discount points were little changed, however.

The same was true for FHA mortgages.

This week, though, the calendar reads 2012. This morning rates started out poorly as positive economic news drove the stock markets higher. The news that carried rates lower in 2011 should keep rates low as we enter 2012 — the Eurozone and its members’ debt obligations, and the U.S. jobs market.

As the year concluded, there were fresh fears of trouble in Italy, which has large amounts of debt due in the early part of the year. There were also stern warnings from Eurozone leaders that a difficult 2012 may be ahead.

Events like these are often good for U.S. mortgage rates. The sad irony of this business – bad news in the economy typically spells good news for rates.

And, this week, the government releases its December Non-Farm Payrolls report. The report moves markets — especially when the actual number of jobs created deviates from consensus estimates.

Economists expect that 150,000 net new jobs were created in December.

The direction of rates depends on the outlook for 2012, both domestic and international. The past few years have made one thing painfully clear: No one can predict the news and how the market reacts to news. Often there’s no rhyme and reason, that’s why I don’t even try. What we can do is track the trends and extrapolate the market’s signals to offer enough data to aid in your decision.

At this stage, rates have more room to rise than to fall.