Bonds Circle The Wagons Ahead of High Risk NFP
The consensus for tomorrow's NFP (nonfarm payrolls, the principal component of the big jobs report) is 110k--not much of a downgrade from last month's 139k. The bond market has recently been trading as if it expects to see an even lower number--a fact that's not too surprising given the preponderance of other data that suggests a weaker labor market in June. The latest in that list was today's ADP employment report which completely whiffed (-35k vs 95k f'cast). Bonds initially rallied on that news, but didn't maintain the gains, possibly due to all of the preemptive rallying already in place over the past 2 weeks, and possibly because ADP is notorious for paradoxically diverging from NFP on any given month despite broad long-term correlation. Today's weakness was minimal in the bigger picture and could just as easily be viewed as part of a 2-day process of circling the wagons (pausing and modestly correcting a prevailing trend on the eve of high-consequence data).
Econ Data / Events
ADP Employment
-33k vs 95k f'cast, 29k prev
Market Movement Recap
08:27 AM slightly weaker overnight but erasing losses after ADP data--at least in the shorter end of the yield curve. MBS now unchanged. 10yr up 4bps at 4.279, but 2yr is down 1.7bps.
09:15 AM Back down to weaker levels. MBS down 5 ticks (.16) and 10yr up 5.3bps at 4.292
12:46 PM Holding at 5 ticks (.16) weaker in MBS. 10yr now up 6.4bps at 4.303
03:10 PM Off the weakest levels in Treasuries with 10yr now up only 4.8bps at 4.288. MBS down an eighth.
Mortgage rates have generally been falling since May 21st and have done nothing but move lower for more than 2 weeks. That winning streak finally came to an end today with the average lender moving up 0.06% for a top tier 30yr fixed quote. While that's a moderately big jump for a single day, if we remove the past 4 days from the equation, today's rates would still be the lowest since early April. In other words, we're still in solid shape in the bigger picture. Additionally, we've increasingly expected rates to bounce as the recent winning streak persisted. As of yesterday, it was up to 11 days and the odds of a bounce rise sharply after about 5-8 days. Last but not least, it's also not uncommon for rates to "circle the wagons," so to speak, if they're in the midst of a sustained trend on the eve of a critical market event. Tomorrow's jobs report classifies as such an event. Along with the Inflation data coming out on July 15th, this data has the potential to firmly support or reject the notion that the Fed could cut rates as early as this month. While we often go out of our way to remind our audience that the Fed Funds Rate doesn't dictate mortgage rates, a lot of that has to do with timing. Changes in Fed Funds Rate expectations almost always correlate quite well with mortgage rate movement, and this data could absolutely change those expectations. As with any big ticket economic report, there's no way to know how it will fare versus the consensus ahead of time because that consensus constantly adjusts for all available info. In other words, if other reports suggest a weaker labor market, forecasters will update their forecasts and traders will take a lead-off in the corresponding direction. Bottom line: all we can know is that potential volatility is high tomorrow (Thursday) morning, for better or worse.
“Pro Tip: Here’s a friendly 4th of July reminder that absolutely no one is going to watch the videos of the fireworks you record on your phone.” You can bet anyone flying some place is watching the flight delays due to staffing and weather. You can bet that people are watching home price appreciation, especially in terms of home equity, HELOCs, and cash-out refinancing. Expect home price appreciation to slow (which isn’t necessarily a bad thing) due to increased supply, steady interest rates, and weaker economic conditions. (No one wants to go back to the 20 percent gains we saw in 2020 and 2021.) The Fannie Mae Home Price Expectations Survey forecasts average home price growth of 2.9% in 2025 and 2.8% in 2026. Zillow projects a 0.7% decline in U.S. home prices between May 2025 and May 2026 due to increased housing inventory. The Mortgage Bankers Association expects home prices to rise by 1.3% in 2025, followed by a 0.3% increase in 2026 and 2027. (Today’s podcast can be found here and this week’s is sponsored by Figure, which is shaking up the lending world with their five-day HELOC, offering borrower approvals in as little as five minutes and funding in five days. Figure has hundreds of partners in the banking, CU, home improvement, and (of course) IMB space embedding their technology, giving borrowers an experience they will rave about. Today’s has an interview with Halcyon’s Kirk Donaldson on the question, “Why is it so expensive to originate a mortgage?” as well as an exploration of how automation, compensation models, regulatory burdens, and tech interoperability could reshape costs and lead to a more efficient future.)
ADP employment was this morning's key economic report and it came out sharply weaker than expected (-33k vs 95k f'cast). There are many past examples of a "miss" of this size prompting a swift rally on the bond market. Although that looked like it could have been in the works in the first few minutes, bonds have since reversed course and moved back in line with weaker overnight levels. What's up with that? To some extent, global bond markets are experiencing some pressure from a massive rout in UK debt over fiscal spending fears. Then there's the simple fact that ADP has such a hit and miss track record when it comes to predicting NFP. Recently, ADP has drifted much lower without NFP following suit.
Traders Buy The Dip After AM Data
After a bit of overnight strength and an early morning pull-back, bonds were right in line with yesterday afternoon's levels ahead of the 10am data. JOLTS (job openings) pushed yields back to yesterday's highs--perhaps with some help from the Senate's passage of the spending bill, but at that point, traders bought the dip in bond prices and pushed back into the day's range. It wasn't enough to get back to positive territory, but it made the day less of an obvious turning point in the bigger-picture. Perhaps a better way to say it would be that bonds still look open-minded when it comes to responding to Thursday's jobs report and next week's CPI.
Econ Data / Events
S&P Manufacturing PMI
52.9 vs 52.0 f'cast, 52.0 prev
ISM Manufacturing
49.0 vs 48.8 f'cast, 48.5 prev
ISM Employment
45.0 vs 47.0 f'cast, 46.8 prev
ISM Prices
69.7 vs 69 f'cast
Job Openings
7.769m vs 7.300m f'cast, 7.395m prev
Market Movement Recap
10:34 AM slightly stronger overnight, but progressively weaker in the AM--especially after 10am econ data. MBS down 7 ticks (.22) and 10yr up 3.2bps at 4.256
12:01 PM 10yr yields are up 5bp at 4.273. MBS down a quarter point.
02:59 PM Modest recovery. MBS down only 5 ticks (.16) now. 10yr up 2.5bps at 4.25
Watching Rates
Check our some recent articles and posts about current rates.
Mortgage rates have generally been falling since May 21st and have done nothing but move lower for more than 2 weeks. That winning streak finally came to an end today with the average lender moving up 0.06% for a top tier 30yr fixed quote. While that's a moderately big jump for a single day, if we remove the past 4 days from the equation, today's rates would still be the lowest since early April. In other words, we're still in solid shape in the bigger picture. Additionally, we've increasingly expected rates to bounce as the recent winning streak persisted. As of yesterday, it was up to 11 days and the odds of a bounce rise sharply after about 5-8 days. Last but not least, it's also not uncommon for rates to "circle the wagons," so to speak, if they're in the midst of a sustained trend on the eve of a critical market event. Tomorrow's jobs report classifies as such an event. Along with the Inflation data coming out on July 15th, this data has the potential to firmly support or reject the notion that the Fed could cut rates as early as this month. While we often go out of our way to remind our audience that the Fed Funds Rate doesn't dictate mortgage rates, a lot of that has to do with timing. Changes in Fed Funds Rate expectations almost always correlate quite well with mortgage rate movement, and this data could absolutely change those expectations. As with any big ticket economic report, there's no way to know how it will fare versus the consensus ahead of time because that consensus constantly adjusts for all available info. In other words, if other reports suggest a weaker labor market, forecasters will update their forecasts and traders will take a lead-off in the corresponding direction. Bottom line: all we can know is that potential volatility is high tomorrow (Thursday) morning, for better or worse.
It's been 88 days since the average 30yr fixed mortgage rate was as low as it is today--close enough to 3 months. Some lenders may be higher or lower than they were yesterday depending on whether or not changed rates yesterday afternoon. Mortgage lenders prefer to set rates once per day, but can "reprice" if the underlying bond market moves enough in one direction or the other. Bonds improved enough yesterday afternoon for many lenders to offer slightly lower rates. Those lenders are a hair higher today, generally. In terms of the underlying bond market, things are just a bit better right now compared to yesterday morning and just a bit worse compared to yesterday afternoon. That deterioration mainly followed this morning's job openings data which showed another increase from the longer-term lows seen 2 months ago. Rates typically move higher if job openings are higher than expected, all else equal. But today's data-driven volatility is nothing compared to what could be seen on Thursday morning following the big jobs report (officially, the "Employment Situation" which offers a count of jobs created in June as well as an update to the unemployment rate).
April 3rd and 4th saw the average top tier 30yr fixed mortgage rates well into the "mid 6's." Many lenders were able to quote 6.5% at the time. Just a few days ago, we noted there was still a ways to go before breaking below those early April levels, but the past few days have taken us within striking distance. The average lender is now only 0.07% higher than they were on April 4th and that's a gap that can be traversed in as little as one day under the right circumstances. If it is destined to be traversed in the near feature, it would likely be due to exceptional weakness in the forthcoming economic data--especially Thursday's big jobs report. Conversely, if this week's economic data surprises to the upside, it would likely coincide with rates bouncing here and headline back into the recent range. And lastly, if this week's data doesn't cast a decisive vote in either direction, next week's inflation reports could easily break the tie. The most interesting aspect of today's movement was the movement itself. It didn't happen due to any interesting data or news headlines. Both stocks and bonds (which dictate rates) improved as traders moved portfolios into position for the end of the month/quarter. This can cause market movement independent of economic data/news.
Friday's mortgage rates ended up being right in line with Thursday's on average. At 6.72%, the MND daily rate index is as low as it's been since early April when it hit 6.60%. If you're thinking that 6.72 doesn't sound much higher than 6.60, you're right! Mortgage lenders tend to offer rates in 0.125% increments, so we're really only one notch away from those lows. After that, we'd need to go all the way back to October to see anything lower. While the mortgage market can languish sideways for weeks without moving outside a 0.12 range, there are also more than a few examples of that much movement in a single day, provided the news is sufficiently inspiring. The catch is that the movement could occur in either direction. In a general sense, the recent improvement has been a byproduct of slightly softer economic data and inflation. There are key reports that speak to those metrics over the next two weeks. Rates have more room to fall if the data shows a continued softening, but could spike abruptly if employment surges or tariff-driven inflation actually materializes.
