Uneventful Trading Day, But That's a Win
There's not much to say about today's trading session. MBS and Treasuries both ended exactly in line with yesterday's latest levels, and there wasn't much fanfare in between. Well, maybe "fanfare" depends on one's perspective. 10yr yields managed to fall 6bps by 9:30am and pushed 6bps higher over the next 3.5 hours before flat-lining in the afternoon. A 6bp swing is somewhat interesting, but even if we only had the flat-line, today would still be a victory due to yesterday's gains and the fact that bonds haven't been bothered by the moderate recovery in stocks. Granted, today's stock market bounce occurred at the same time as the bond yield bounce, but the correlation didn't even make it through the day before breaking down again.
Econ Data / Events
Jobless Claims
223k vs 224k f'cast, 221k prev
Philly Fed Index
12.5 vs 8.5 f'cast, 18.1 prev
Market Movement Recap
08:30 AM No major reaction to ho hum data after overnight gains. MBS up 5 ticks (.16) and 10yr down 3.9bps at 4.195
11:37 AM MBS up 2 ticks (.06) and 10yr down half a bp at 4.228.
03:10 PM sideways at weaker levels. MBS up 1 tick (.03) and 10yr up 0.2bps at 4.236
It was actually a rather uneventful day for the bond market. That means it should have been an uneventful day for mortgage rates (because they're driven by changes in the bond market). To be fair, it was far from an exciting day, but the average mortgage lender was nonetheless able to inch closer to potentially exciting milestone. Rates have generally been flat at levels that are just a bit higher compared to the longer-term low seen in early March. Before that, you'd have to go back to mid-October to see anything lower. Today's mortgage rates ended up 0.05% lower than yesterday's, despite the bond market indicating no change. The discrepancy comes down to timing. Yesterday saw a nice improvement in bonds late in the day. Not every mortgage lender went to the trouble to improve their rates. Now today, bonds are falling back to the same levels, but they were in better shape this morning when most lenders decided their rates for the day. The average lender has, once again, not gone to the trouble to raise their rates in response to the bond market movement. If you're wondering if there's a tacit implication about tomorrow's rates being a bit higher if nothing changes between now and then, you're exactly right. That would be the mathematical conclusion anyway. As for this afternoon, the average lender is only 0.01% above the "lowest since October" rates seen on the morning of March 4th.
“My wife just left me. She says life revolves around baseball and she's sick of it. I'm quite upset. We were together for 7 seasons.” Say hello to the spring equinox, that astronomical spring in the Northern Hemisphere that occurs when the sun crosses directly over the equator, resulting in nearly equal day and night lengths, and halfway between the day with the least amount of daylight and the day with the most. Rain or shine, the seasons proceed. Rain or shine, data breaches occur (see below). Rain or shine, lenders and vendors are interested in being acquired, acquiring, or merging with culturally similar organizations. This month’s STRATMOR piece is titled, “Mergers and Acquisitions Aren’t Going Away, and In Fact…” And rain or shine, the U.S. Federal Reserve is keeping an independent eye on the economy and making sure it is stable. Yesterday the “Fed” did… nothing. (More below in capital markets.) Vice Capital’s Chris Bennet will be on The Big Picture today at 3PM ET to discuss the Federal Reserve, the link between current and future yields, and why rates are where they are. (Today’s podcast can be found here and this week’s is sponsored by CoreLogic. Whether it’s using cash to purchase a home, debt consolidation, or a straight cash-out refinance, CoreLogic’s Precision Marketing’s data-driven insights pinpoint your best opportunities to retain and recapture your clients. Today’s has an interview with Simple Lending Financial’s Janine Cascio on her journey from breaking into the mortgage industry to founding her own company, reflecting on the challenges and triumphs along the way, and offering valuable advice for women looking to advance their careers and break barriers in the industry.)
The eternal disclaimer: we should never flat-out expect a particular correlation between stocks and bonds, with limited exceptions. Yesterday's Fed announcement was an exception, because we often see stocks and bonds improve together when the market perceives a friendlier Fed. That correlation (stock prices moving higher and bond yields moving lower) is a break from the recent norm where heavy stock losses have spilled over to help bonds. We may be seeing a gentle return of that norm this morning. Data failed to offer any inspiration, but stocks are surging at the open, with the reversal of overnight losses aligning with a reversal in the overnight bond market rally.
If there's a happy takeaway above, it's that the bond bounce hasn't been remotely commensurate with the stock bounce. Perhaps there is some small attention being paid to Jobless Claims creeping up to their highest non-seasonally adjusted level of the past 5 non-lockdown-impacted years.
Post-Fed Rally is "Nice" But Not Quite Exciting
In a small vacuum, today's Fed announcement had a noticeably positive impact on bonds despite yielding "just another day" vibes in the bigger picture. Traders reacted to some combination of a reasonably steady dot plot and the announcement of slower balance sheet shrinkage (which, in turn, implies more bond buying in the short term at the expense of a longer wait before the Fed fully reinvests its balance sheet proceeds). If you don't understand that last part, don't worry. It's arcane. It is basically a technical adjustment in the pace, but not in the destination. The bottom line is that the adjustment was mildly friendly for bonds today, even if it was a technical adjustment and not an indication of easier monetary policy.
Market Movement Recap
10:34 AM Roughly unchanged overnight and slightly weaker in the past hour. MBS down an eighth and 10yr up 1.6bps at 4.302
01:00 PM Sideways since the last update. MBS down 3 ticks on the day and 10yr up 2.4bps at 4.311
02:25 PM Stronger after Fed announcement (greatly slowing the pace of Treasury tightening). MBS up 2 ticks (.06) and 10yr down 1.3bps at 4.274
03:41 PM Holding gains after Powell press conference. MBS up 5 ticks (.16) and 10yr down 3.4bps at 4.253
Watching Rates
Check our some recent articles and posts about current rates.
It was actually a rather uneventful day for the bond market. That means it should have been an uneventful day for mortgage rates (because they're driven by changes in the bond market). To be fair, it was far from an exciting day, but the average mortgage lender was nonetheless able to inch closer to potentially exciting milestone. Rates have generally been flat at levels that are just a bit higher compared to the longer-term low seen in early March. Before that, you'd have to go back to mid-October to see anything lower. Today's mortgage rates ended up 0.05% lower than yesterday's, despite the bond market indicating no change. The discrepancy comes down to timing. Yesterday saw a nice improvement in bonds late in the day. Not every mortgage lender went to the trouble to improve their rates. Now today, bonds are falling back to the same levels, but they were in better shape this morning when most lenders decided their rates for the day. The average lender has, once again, not gone to the trouble to raise their rates in response to the bond market movement. If you're wondering if there's a tacit implication about tomorrow's rates being a bit higher if nothing changes between now and then, you're exactly right. That would be the mathematical conclusion anyway. As for this afternoon, the average lender is only 0.01% above the "lowest since October" rates seen on the morning of March 4th.
Heading into today, we knew the afternoon's Fed announcement was biggest potential flashpoint for interest rate movement, and that the movement probably wouldn't be extreme. The unknown, as always, was the direction of said movement. Thankfully, it was lower. This wasn't destined to be the case this morning. Out of the gate, the average mortgage lender was offering slightly higher rates compared to yesterday's latest levels. After markets reacted to the Fed, lenders revised their rates to the lowest levels in just over a week (also fairly close to the low end of the range going back to mid October). [thirtyyearmortgagerates] What did the Fed say/do to bring rates down? First off, the bond market movement wasn't big, even by the standards of a regular non-Fed day. That said, there was definitely a reaction to the Fed. Some of it had to do with the Fed's rate forecasts staying fairly grounded despite concerns that recent inflation readings could push those forecasts higher. In addition, the Fed made some changes to the way it handles the payments it receives on bonds it already owns. The changes will allow the Fed to reinvest more of those payments back into buying new bonds, and bond buying is good for rates, all other things being equal.
As we often discuss, mortgage lenders prefer to set their rates once per day. They only make changes when the underlying bond market makes a big enough move. While it wasn't an extreme example, many lenders made such changes today as bonds improved steadily throughout the day. Before the improvements, the average lender was offering slightly higher rates compared to yesterday. After the improvement, today's rates are a hair lower than yesterday's. In both cases, rates continue holding inside a narrow range just off the best levels since mid October. There were several economic reports this morning, but they didn't have a material impact on rates. Tomorrow's key event is the Fed announcement and press conference. This announcement is one of only 4 per year where the Fed will update its rate projections--something that often causes volatility across the rate spectrum. Those projections come out at 2pm ET and Fed Chair Powell holds the customary press conference 30 minutes later. We're not expecting any specific outcome in terms of the direction of movement in mortgage rates and in general, this Fed announcement is a bit less consequential than many recent examples. Nonetheless, potential volatility is always factor on Fed days, even if the volatility doesn't materialize.
Mortgage rates are based on movement in the bond market, and the bond market is closed for most of the weekend. As such, one might assume that Monday's mortgage rates would always be right in line with Friday's. But this is definitely not the case for two reasons: 1. The bond market may not officially open in the U.S. until 8:20am ET, but U.S. bonds begin to trade late Sunday night. 2. Mortgage lenders don't set their rates for the day right when bonds start trading. The average lender waits until around 10-11am ET. Because of this, there can be quite a bit of movement in bonds before lenders set rates for the day. The only time we'd see Monday's rates hold perfectly in line with Friday's are occasions like today where the bond market was in similar territory to Friday's levels in the 10-11am ET hour this morning. The sideways drift means mortgage rates continue operating in a narrow range near the lowest levels since mid-October.
