Blogging With The Krew

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Ultimately an Uneventful Week Despite Micro-Volatility

Ultimately an Uneventful Week Despite Micro-Volatility This morning featured an overnight rally driven by weakness in European PMI data and a logical sell-off following much stronger PMI data in the U.S.  Specifically, S&P Global's Services PMI rose to the highest level in more than 2 years.  This is some of the earliest available data for the month of June and the burden of refutation is on incoming data that is week's away (for instance, next week's headline report, PCE, is still for the month of May). Today's selling never got out of hand, however, and that meant the week as a whole was wholly uneventful in the bigger picture.  Econ Data / Events S&P Services PMI 55.1 v s 53.7 f'cast, 54.8 prev S&P Manufacturing PMI 51.7 vs 51.0 f'cast, 51.3 prev Existing Home Sales 4.11m vs 4.10m f'cast, 4.14m prev Leading Economic Indicators -0.5 vs -0.3 f'cast, -0.6 prev Market Movement Recap 09:36 AM Moderate overnight gains, following Europe.  10yr down 4bps at 4.22.  MBS up 3 ticks (.09). 10:43 AM Weaker after PMI data with 10yr now up 1.2bps.  MBS down 2 ticks (.06). 12:45 PM Sideways to slightly stronger after AM sell-off.  MBS unchanged.  10yr down 0.3bps at 4.258 04:37 PM Low volatility afternoon.  MBS up 1 tick (.03).  10yr down 0.4bps at 4.256

June Shaping Up Nicely, But Bigger Tests Are Yet to Come

After a rocky start to the year, things began to improve for rates and the inflation outlook in May. June took the improvement to the next level, but this week didn't affect the bigger picture. Ahead of Wednesday's market closure for Juneteenth, the most relevant economic report was Retail Sales on Tuesday morning.  It came in slightly below forecast and the previous month was revised lower.   Rates responded by moving back toward recent lows, but not below them. Some sources suggest mortgage rates are in fact at multi-month lows, but this relies on Freddie Mac's weekly survey which is notorious for modest inconsistencies with reality due to the timing and methodology of the survey.  In both 10yr Treasury yields and mortgage rates, the reality has been more of a sideways fizzle as opposed to additional improvement. Apart from Retail Sales, Friday's PMI data from S&P Global caused the most notable market reaction after coming in at the strongest levels in more than 2 years--albeit, just barely. Stronger economic data tends to coincide with rates moving up.  Using 10yr Treasury yields as a convenient intraday benchmark for mortgage rate momentum, we can see the impact relative to Retail Sales earlier in the week.  Neither were remotely on the scale of last week's CPI data.  Additionally, they each argued opposite cases, thus helping the rate range remain subdued for now. In other words, most of June's progress was already in place before this week began.  It gets rates within striking distance of a longer term uptrend--one that will be hard to definitively break unless June's forthcoming economic data paints a picture of economic weakness and lower inflation.  It will be several weeks before most of June's data starts coming in.

AI Product; Capital Markets; Wholesale and Correspondent News; Appraisals are Junk Fees?

Don Henley’s “Boys of Summer” was a hit 40 years ago. (Yes, 40 years.) There are plenty of beaches in Hawai’i, but here in Honolulu at the MBAH conference, it’s all business. MBA Chair Mark Jones reminded the audience that President Biden “declared war” on what he called “junk fees.” Sure enough, soon after the State of the Union Address, the CFPB announced that it would soon target what it called “junk fees” in mortgage closing costs. Unfortunately, what the CFPB calls “junk fees” include items required in the lending process, like flood certs, credit reports, appraisals. These help borrowers, investors, and taxpayers. At a recent hearing, House Financial Service Chair Congressman Patrick McHenry said to CFPB Director Chopra that his “so-called independent agency has become an arm of President Biden’s political operation.” To understand that accusation better, check out attorney Brian Levy’s most recent Mortgage Musing, where he describes how CFPB (Consumer Financial Politics Bureau?) appears to be putting politics over effective consumer protection policies with their junk fee, “name and shame” registry, and other policy initiatives. (Today’s podcast is found here after 8:30AM ET and this week’s is sponsored by Quontic whose mission is to help creditworthy borrowers obtain home loans and give them the “yes” they’ve been waiting for. Hear an interview with FundingShield’s Adam Chaudhary on new schemes and threats in the wire and title fraud space, and how both good players and bad players are attempting to use AI to their advantage.)

Logical Reaction to Much Stronger Services PMI

S&P Global (formerly Markit) PMIs are the standard PMI around the world, but have long been second fiddle to ISM PMIs in the U.S.  That's certainly still the case, but in this era of ever-increasing data dependence, we've seen a drastic change in the market's willingness to trade the preliminary S&P PMI releases, which are among the earliest economic indicators for any given month (it will be another two weeks before we get ISM PMIs for June). The current installment features a logical reaction, in which the highest Services PMI in more than 2 years is pushing bonds into weaker territory following overnight gains (ironically driven by weaker PMI data in Europe).

Counterintuitive Weakness Early, But Inconsequential in Bigger Picture

Counterintuitive Weakness Early, But Inconsequential in Bigger Picture The past two trading days each had their own version of counterintuitive movement.  Today's installment featured bond yields rising after a batch of mostly weaker economic data.  The only way to justify it using the data itself would be to assume the market's nearly exclusive focus was on the inflation implications associated with higher Philly Fed prices (a component of the Philly Fed Index). Apart from that, we can consider position-driven trading which may have been behind Tuesday's gains and now today's offsetting losses.  Regardless, none of the above matters considering the well-contained size of each move.  Yields remain just shy of recent lows and have been trading a narrow range ever since last week's rally concluded. Econ Data / Events Jobless Claims 238k vs 235k f'cast, 243k prev Continued Claims 1828k vs 1810k f'cast, 1813k prev Philly Fed Index 1.3 vs 5.0 f'cast, 4.5 prev Philly Fed Prices 22.5 vs 18.7 prev Housing Starts 1.277m vs 1.37m f'cast, 1.352m prev Market Movement Recap 09:46 AM paradoxically weaker after data.  10yr up 6bps at 4.284.  MBS down 6 ticks 11:39 AM gradually off the lows.  MBS down an eighth and 10yr up 4.5bps at 4.269 02:32 PM A bit more healing in Treasuries with 10yr up 2.6bps at 4.249.  MBS still down almost an eighth.

Watching Rates

Check our some recent articles and posts about current rates.

June Shaping Up Nicely, But Bigger Tests Are Yet to Come

After a rocky start to the year, things began to improve for rates and the inflation outlook in May. June took the improvement to the next level, but this week didn't affect the bigger picture. Ahead of Wednesday's market closure for Juneteenth, the most relevant economic report was Retail Sales on Tuesday morning.  It came in slightly below forecast and the previous month was revised lower.   Rates responded by moving back toward recent lows, but not below them. Some sources suggest mortgage rates are in fact at multi-month lows, but this relies on Freddie Mac's weekly survey which is notorious for modest inconsistencies with reality due to the timing and methodology of the survey.  In both 10yr Treasury yields and mortgage rates, the reality has been more of a sideways fizzle as opposed to additional improvement. Apart from Retail Sales, Friday's PMI data from S&P Global caused the most notable market reaction after coming in at the strongest levels in more than 2 years--albeit, just barely. Stronger economic data tends to coincide with rates moving up.  Using 10yr Treasury yields as a convenient intraday benchmark for mortgage rate momentum, we can see the impact relative to Retail Sales earlier in the week.  Neither were remotely on the scale of last week's CPI data.  Additionally, they each argued opposite cases, thus helping the rate range remain subdued for now. In other words, most of June's progress was already in place before this week began.  It gets rates within striking distance of a longer term uptrend--one that will be hard to definitively break unless June's forthcoming economic data paints a picture of economic weakness and lower inflation.  It will be several weeks before most of June's data starts coming in.

Mortgage Rates Unchanged Versus Tuesday's Levels

The bond market was closed on Wednesday for the Juneteenth holiday.  As such, mortgage lenders were either closed or unable to update mortgage rates based on market movement.  Today's rates are perfectly in line with Tuesday morning's, on average, even though the bond market is slightly weaker.   Weakness in bonds refers to lower prices and higher yields/rates.  Mortgage rates almost always move with the bond market, but when the movements are small, there can be exceptions.  That's the case today as the losses leave mortgage-backed bonds right in line with the levels seen on Tuesday morning.  Bonds did move on to stronger levels by Tuesday afternoon, but not to a sufficient extent for most lenders to update their pricing. The net effect is an average top tier conventional 30yr fixed rate that's still a hair above 7%.  

Mortgage Rates Move Slightly Lower After Retail Sales Report

Mortgage rates began the week with a modest move back up and over the 7% threshold, but managed to erase some of those losses today.  The improvement followed this morning's Retail Sales data which came out weaker than expected. Mortgage rates are based on trading levels in the bond market.  Bonds pay attention to multiple cues at any given time.  Major economic reports are always among those cues as the health of the economy tends to coincide with rates (i.e. stronger = higher).  Retail Sales isn't as big of a report as the Consumer Price Index (CPI) or The Employment Situation (the jobs report), but it's a respectable supporting act.  Sales growth was surprisingly high in the data that came out in March and April.  May's report showed a correction back to 0.0% growth.   Today's report came in just barely positive at 0.1--a far cry from the 0.6 level 2 months ago and below the median forecast of 0.2.  In addition, it included a revision to May's report from 0.0 to -0.2.  All told, it painted a less upbeat picture for the American consumer compared to a few months ago. A slower economy is less able to sustain higher interest rates for a variety of reasons--not the least of which being the suggestion of slower price growth.  With that, bond traders bought more bonds, thus pushing bond prices higher and yields (aka "rates") lower.  Tomorrow is a market closure for the Juneteenth holiday.  Trading resumes on Thursday but we'll be waiting until the end of next week for the next round of big ticket economic data.

Mortgage Rates Back Above 7% to Start New Week

Mortgage rates moved modestly higher to start the new week.  With the average top tier 30yr fixed rate just under 7% on Friday, this meant a move to just over 7% today.   As always, keep in mind that a mortgage rate index is best used to capture the day to day  movement in rates as opposed to outright levels.  The latter can vary significantly depending on credit score, equity, occupancy, discount points, and lender margins. There weren't any interesting or compelling developments driving today's bond market movement (bonds dictate mortgage rate momentum).  It was an uninspired, uninteresting Monday without any significant economic data or bond market volume.  Things should be more interesting tomorrow, for better or worse, due to the release of the Retail Sales data at 8:30am ET.  While this isn't in the same league as the jobs report or the Consumer Price Index, when Retail Sales come in much higher or lower than forecast, there's often a noticeable reaction in rates.