Decent Gains With Some Help From 7yr Auction
You know it's a holiday with an early closure if we're talking about a 7yr Treasury auction having an impact on the bond market. To be fair, 7s have had an impact once or twice in the past, but the bar is certainly high. The holiday calendar makes the bar a bit lower as fewer determined traders are required to move the whole pile. Such was the case after the 11:30am ET auction. Bonds were already in good shape before that, but the earlier gains were more incidental than data-driven.
Econ Data / Events
Continued Claims (Dec)/13
1,923K vs -- f'cast, 1897K prev
Jobless Claims (Dec)/20
214K vs 223K f'cast, 224K prev
Market Movement Recap
08:31 AM Unchanged overnight and no reaction to claims data. MBS unchanged and 10yr down 1/10th of a bp at 4.165
It was a short day for the bond market that underlies mortgage rates, but a good one. A side effect of holiday weeks and early market closures is a bit of random volatility without any obvious justification. When volume and participation are low, bonds can move a bit more than they otherwise might. All that to say today's improvement was luck of the draw, but we won't object to the result. The average top tier 30yr fixed rate fell to the lowest level since November 25th. The caveat is that the range has been fairly narrow during that time. [thirtyyearmortgagerates]
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While many government employees have the day off today and Friday, these are not new, official Federal Holidays. As such, the bond market is open on the same schedule as always. Incidentally, that's an early close (2pm ET) on the 24th and a full close on the 25th. This assumes both are weekdays. Official holiday trading hour recommendations are published by SIFMA. Trading is off to an uneventful start with a robotically sideways overnight session and no reaction to Jobless Claims (the day's only econ data). There is also a 7yr Treasury auction at 11:30am ET, but most human traders will be done making new trading decisions long before then (as in yesterday).
In terms of claims data, 2025 continues running just barely above 2024, but not in a way that suggests any dire concern about the labor market. In fact, the gap has tightened up a bit over the past 2 months (i.e. black line is closer to yellow line).
Stunning Display of Holiday Trading Weirdness
GDP for Q3 may be ancient history as far as econ data goes, but markets didn't seem to think so in the hour following this morning's release. GDP was much stronger than expected and bonds traded it like it was a legit market mover. But most of the reaction was a holiday-induced amplification of what might have otherwise only caused barely-noticeable weakness in bonds. That point was driven home by the end of the day as both Treasuries and MBS returned to unchanged levels.
Econ Data / Events
ADP Employment Change Weekly
11.5K vs -- f'cast, 16.25K prev
Core CapEx (Oct)
0.5% vs -- f'cast, 0.9% prev
Core PCE Prices QoQQ3
2.90% vs 2.9% f'cast, 2.6% prev
Corporate profitsQ3
4.4% vs -- f'cast, 0.2% prev
Durable goods (Oct)
-2.2% vs -1.5% f'cast, 0.5% prev
Industrial Production (Oct)
-0.1% vs 0.1% f'cast, 0.1% prev
Industrial Production (Nov)
0.2% vs -- f'cast, -0.1% prev
CB Consumer Confidence (Dec)
89.1 vs 91 f'cast, 88.7 prev
Market Movement Recap
08:35 AM MBS are now down 1-2 ticks (.03-0.06) and 10yr yields are up roughly 1bp at 4.169
11:46 AM Bonds sold off a bit more after the last update, but are now back to similar levels with MBS down 2 ticks (.06) and 10yr up 1.1 bps at 4.17
02:00 PM Sideways since last update. MBS down 2 ticks (.06) and 10yr up 0.7bps at 4.167
Watching Rates
Check our some recent articles and posts about current rates.
It was a short day for the bond market that underlies mortgage rates, but a good one. A side effect of holiday weeks and early market closures is a bit of random volatility without any obvious justification. When volume and participation are low, bonds can move a bit more than they otherwise might. All that to say today's improvement was luck of the draw, but we won't object to the result. The average top tier 30yr fixed rate fell to the lowest level since November 25th. The caveat is that the range has been fairly narrow during that time. [thirtyyearmortgagerates]
Mortgage rates have broadly been in a narrow holding pattern for the past 4 months and an even narrower range during December. Today will do nothing to change that with the average lender ending the day exactly where they left of yesterday. Earlier today, however, the average lender was offering slightly higher higher rates. The upward pressure came courtesy of the bond market's reaction to stronger GDP numbers for Q3. But that initial reaction proved to be a temporary overreaction, exacerbated by lighter trading participation associated with the holiday week. In general, lower participation greases the skids for volatility, essentially magnifying the impact of events that might not have much of an impact otherwise. The bond market is technically open tomorrow (and thus, lenders will publish mortgage rates), but it should be even more heavily affected by holiday trading vibes. Also, there isn't much in terms of important econ data to cause the kind of volatility seen today--no to mention the fact that today's volatility ultimately proved to be non-existent.
Mortgage rates are tied to movement in the bond market and bonds were close enough to Friday's levels that mortgage rates were essentially unchanged today. This keeps the average lender in the lower portion of the narrow range seen over the past 4 months. If rates manage to move noticeably lower from here, they'll be challenging the lowest levels in more than 3 years. Meaningful momentum may be hard to come by over the next 2 weeks. During that time, the bond market will be fully closed for 2 days, partially closed on 2 days, and much lighter in volume and participation for the rest of the time. This can lead to random, small-scale volatility but it rarely results in lasting momentum. For that, we'll be waiting until the major econ data begins coming out in January--most notably the Jan 9th jobs report.
It ended up being a fairly uneventful day for mortgage rates despite scattered speculation about the impact of foreign monetary policy decisions. The average lender nudged just a hair higher, resulting in the 2nd lowest reading of the week. Apart from yesterday, the last day with lower rates was more than 2 weeks ago on December 4th. The coming week will be heavily affected by the realities of the holiday trading environment. There's no repeatable formula for this. We simply widen the range of potential rate movement that occurs for no apparent reason. Most of the time, rates simple drift aimlessly sideways, but on certain years, there are inexplicable jumps/dips. We won't have a solid sense of where the rate market wants to be until the important economic reports start coming out in January.
