There were quite a few economic reports that would have been released this morning were it not for the gov shutdown. OK, well only 3 notable absences, but there would have been a 3 week backlog of jobless claims in addition to typically spicier Retail Sales and PPI data. As it stands, Philly Fed was the only scheduled data released at 8:30am and it had no impact. Instead, it was a glut of block trades (read all about them here) just after 9am that sent 10yr yields lurching higher. With that, yields have rejected the 4.0% floor yet again and are now up modestly on the day. MBS are following suit, down just under an eighth of a point.
Fairly Flat At Strongest Levels in Weeks
10yr yields ended the day a mere 0.1bp higher than yesterday (4.029 vs 4.028). Call it "unchanged," and no one will argue. In this case, an unchanged result means we're holding at the best levels since Sep 17. MBS managed to add 2bps to yesterday's close, and are also at 4 week highs. Volume was much lower than yesterday, but still elevated compared to most of last week. That's interesting considering the narrow range and light volatility. As far as the modest mid-day bump in Treasury yields, there were no obvious triggers apart from arcane speculation surrounding liquidity conditions and funding market stress with traders pointing to a big take up in the Fed's standing repo facility. This doesn't really hold water due to the timing of the repo announcement. The only other thought is that we've often noted enigmatic volatility on tax deadline and adjacent days. Either way, it was too small a move to merit any further investigation.
Econ Data / Events
NY Fed Manufacturing
10.7 vs -1.0 f'cast, -8.7 prev
Market Movement Recap
09:54 AM Slightly stronger overnight and holding gains so far. MBS up 3 ticks (.09) and 10yr down 2.5bps at 4.003
12:05 PM MBS now down 1 tick (.03) on the day and 5 ticks (.16) from the highs. 10yr up just under 1bp at 4.037
02:49 PM fairly flat after mid-day selling. MBS unchanged and 10yr up 1.6bps at 4.045
Mortgage rates are based on bonds and bonds are trading at their best levels since September 17th. Of course there are different kinds of bonds, so we should specify that we're talking about the bonds that are specifically tied to mortgages (MBS or mortgage backed securities). With this in mind, it's no surprise to see mortgage rates also at the lowest levels since September 17th. The same was true yesterday, but today marked another incremental improvement. Compared to yesterday, the bond market was actually fairly flat. So why did rates improve? It has to do with timing. Yesterday afternoon saw a decent rally in bonds (rallies = lower rates), but it was late enough in the day that many lenders didn't bother adjusting their mortgage rate offerings until this morning. Bottom line: mortgage lenders were getting caught up with yesterday's bond market rally.
While the debate rages on about whether the three colors of candy corn taste different, at the other end of the tech spectrum, lenders are weeding out unused or out-of-date technology, reviewing new tools, all the while looking at bad developments in the IT world. (Speaking of tools, Ben Teerlink, Founder/CEO, MMI, will be interviewed today at 11AM PT on the L1 show.) AI companies are paying people to fold laundry in front of robots so they can learn to do household chores. It’s disappointing that we may never see a robot get tangled in a fitted sheet. Robots and automatic machines aren’t new (the French were cutting edge 250 years ago). But now Americans, including potential borrowers, are losing millions to scammers at crypto ATMs. Crypto scams drew a lot of people who wanted to make money and didn’t care about victims. They abound. Here’s how companies profit. JPMorgan Chase isn’t taking any security chances at its brand-spankin’-new $3 billion headquarters in Midtown Manhattan, so it’s requiring employees to offer up biometric data in order to access the building: biometric access is now required to enter the skyscraper at 270 Park Avenue. (Today’s podcast can be found here and this week’s are sponsored by Floify, an industry-leading point of sale platform. With Floify’s new Dynamic AI feature, lenders can modify applications with no coding required and rely on AI to autofill key application fields, allowing borrowers to fill out only a few fields relevant to their needs. Hear Figure’s Anthony Stratis & West Capital Lending’s Arthur Greenbaum discussing the power of partnership, and why they're excited about Figure's new AI-powered DSCR platform.)
Stocks have made a bit of a round trip since last Friday when Trump's tariff comments sparked a big sell-off. Bonds benefited from that at the time. So far this week, stocks have staged a solid comeback--especially today as upbeat earnings and Fed rate cut expectations provide support. Bonds continue to rally on multiple Fed comments that focus on a weaker labor market underpin an increasingly clear rate cut picture. Many market participants read yesterday's Powell comments as endorsing another cut in October. Bonds mostly had this priced in, but the absence of bad news is good news--at least good enough for more modest gains this morning. That said, gains are tougher to justify from here with yields pushing the lower end of the range boundary.
Watching Rates
Check our some recent articles and posts about current rates.
Mortgage rates are based on bonds and bonds are trading at their best levels since September 17th. Of course there are different kinds of bonds, so we should specify that we're talking about the bonds that are specifically tied to mortgages (MBS or mortgage backed securities). With this in mind, it's no surprise to see mortgage rates also at the lowest levels since September 17th. The same was true yesterday, but today marked another incremental improvement. Compared to yesterday, the bond market was actually fairly flat. So why did rates improve? It has to do with timing. Yesterday afternoon saw a decent rally in bonds (rallies = lower rates), but it was late enough in the day that many lenders didn't bother adjusting their mortgage rate offerings until this morning. Bottom line: mortgage lenders were getting caught up with yesterday's bond market rally.
Last week ended with mortgage rates dropping to their best levels since September 17th. Over the weekend, the underlying bond market maintained the gains seen on Friday afternoon, thus allowing most lenders to set rates at least as low as they were at that time. The average lender is actually just slightly lower today, thus making this another new multi-week low. The counterpoint is that the range is still relatively narrow, which each day during this stretch (roughly 4 weeks) falling inside a range of 6.31 to 6.39. As always, keep in mind that the MND index is an average top tier rate (i.e. high credit score, high downpayment, owner occupied, etc.). There were no major sources of volatility on the calendar today although a speech from Fed Chair Powell had the potential to cause some. The event calendar will remain more silent during the government shutdown. Once it's over, volatility potential will increase.
Mortgage rates saw their biggest day-over-day decline of the past several weeks today in response to unexpected news regarding additional tariffs on China. Trump had previously been scheduled to meet with China's President Xi in 2 weeks, but today said there was no reason to do so and that the administration is currently calculating a massive increase in Chinese tariffs. Stocks and bonds immediately responded with the former moving lower and bonds rallying. When bonds rally, interest rates move lower, all else equal. Mortgage lenders use mortgage-backed securities (MBS) to determine what rates they can offer. When bonds move enough during the course of a day, mortgage lenders can reissue higher/lower mortgage rates. Today's big mid-day rally is resulting in fairly widespread improvements. The net effect is an average 30yr fixed rate that is now as low as it's been since the September 17th Fed meeting. For context, today's rates are only a hair lower than October 3rd.
It's getting pretty tough to weave an interesting narrative on mortgage rates over the past 3 weeks. During that time, they just haven't changed that much for the average lender. Today was just another day in that regard. Bonds (which dictate day to day movement in rates) were slightly weaker than yesterday. This implies slightly higher mortgage rates and, indeed, today was no exception. But the important points are as follows:
bond market movement has been relatively small on any given day
winning and losing days have been in relatively equal supply
Bottom line: today's losses leave the average rate easily inside the narrow prevailing range.
