Uneventful Monday; MBS Underperform
In the bigger picture, bonds were flat on Monday without any major volatility in either direction. But if we break out the microscope, we find longer-term Treasuries rallying modestly while MBS lost 1 tick by the 3pm close. In today's case, the MBS underperformance is most easily attributed to Treasuries' underperformance on Friday. Specifically, 10yr yields pressed up to new highs by the end of the day whereas MBS held just slightly above their mid-day lows. Said another way, if we look back 2 trading sessions instead of 1, there's no noticeable underperformance. The flat vibes are consistent with an absence of actionable info. This will change as the week continues, especially on Wednesday (Fed Minutes) and Thursday (NFP).
Econ Data / Events
ADP Weekly Payrolls (Tue, 11/11)
-11k
Market Movement Recap
08:54 AM Modestly stronger overnight with a slight pullback at 7am. MBS up 1 tick (.03) and 10yr down 1.5bps at 4.135
12:09 PM MBS still up 1 tick (.03) and 10yr down 2.3bps at 4.127
03:28 PM MBS down 2 ticks (.06) and 10yr up 1.8bps at 4.132
The bond market (which dictates rates) was roughly unchanged over the weekend. As such, it's no surprise to see mortgage rates right in line with Friday's latest levels. For the average lender, this means conventional 30yr fixed rates are at the upper boundary of a narrow range stretch back to September 4th. It was the September 5th jobs report that sparked a rate rally that resulted in the lowest levels in over a year. Due to the government shutdown, that was the last time a jobs report was released. No that the government is reopen, the jobs report that normally would have come out at the beginning of October will be released this Thursday. While it likely won't be as potent as a regularly-scheduled release in terms of its impact on rates, it can nonetheless result in some volatility. Before that, we'll get the latest Fed meeting minutes on Wednesday (a more detailed account of the Fed's discussion that took place 3 weeks ago). With numerous recent Fed speakers calling a December rate cut into question, this particular installment of Fed Minutes could have a bigger impact than normal.
Today’s trivia: Missouri and Tennessee are tied for bordering the most states: eight. This week I head to Missouri, the jumping off point for thousands of wagon trains heading west in the mid-1800s. Back then, land grants were relatively common but home loans weren’t, LTVs were high, and repayment was usually within five years. Deals were done with a handshake. Fast forward to today, and we have Fannie Mae dropping its minimum credit score requirements and relying more on DU to assess borrowers. The topics brought up or publicized recently by the Trump Administration include mortgage portability, 50-year mortgage amortization, tech companies doing business deals (with the GSEs with possibly an ownership stake in their companies), and assumability. The last thing we, as an industry need, is being accused of wrongdoing, but unfortunately, under the leadership of Bill Pulte and the FHFA, Fannie Mae allegedly shared pricing information with Freddie Mac. Many of us have been in meetings where Agency counsel attended specifically to ensure that price is not discussed! Some are saying that Mr. Pulte, who reports to the boards of Freddie and Fannie, may be a liability to President Trump who is just trying to improve affordability. Stay tuned. (Today’s podcast can be found here and this week’s are sponsored by Figure. Figure 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. And, embedding their technology is easy. Hear an interview with MBA’s Joel Kan on the mortgage industry’s cautiously optimistic outlook, with steady purchase activity, emerging refi opportunities, and expected annual originations above $2 trillion, despite regional housing softness, a gradually weakening labor market, and uncertain short-term impacts from AI.)
The jobs report (for September) will be released on Thursday. It is the first major econ data to re-appear after the shutdown. Notably, that's because it was ready to publish at the time of the shutdown (so don't expect a flood of other announcements). By the time it comes out, we'll have been waiting 1.5 months for a report that otherwise would have come out in early October. On one hand, that's kind of stale. On the other hand, it's the jobs report. Despite the time lag, it can absolutely have an impact (consider that NFP revisions or the always-stale job openings numbers frequently have an impact). That said, we wouldn't expect it to be nearly as potent as a more timely release.
One day prior, the Fed Minutes release is a bit more interesting than normal considering the wave of hawkish messaging last week (it certainly seems like the Fed was actively trying to prep markets for unfriendly minutes).
Gains Completely Erased; Stocks Looking More Culpable
Viewed in a vacuum, this mornings 7-8am rally remains enigmatic. There was some small case to be made that stock losses played a role, but the bond buying definitely didn't line up with stocks in a normal way (i.e. it looked like there was some third variable that caused the bond rally to play out in a much more concentrated way). But as the day progressed, we saw stronger evidence of correlation between stock prices and bond yields. Specifically, a sharp rebound in stocks at the 9:30am NYSE open coincided with an equally sharp reversal in bonds. Yields ultimately leveled off 2.5-3bps higher on the day with MBS spending the afternoon in just barely weaker territory.
Econ Data / Events
ADP Weekly Payrolls (Tue, 11/11)
-11k
Market Movement Recap
08:39 AM Initially weaker overnight, but now stronger after a big rally at 7am-730am. MBS up 5 ticks (.16) and 10yr down 5bps at 4.067
09:58 AM giving up most of the AM gains. 10yr down less than half a bp at 4.112. MBS still up 3 ticks (.09) but down 5 ticks (.16) from AM highs.
12:24 PM New lows. MBS down 1 tick (.03) and 10yr up 2.7bps at 4.142
04:22 PM Heading out near weakest levels. MBS down 2 ticks (.06) and 10yr up 3bps at 4.145
Watching Rates
Check our some recent articles and posts about current rates.
The bond market (which dictates rates) was roughly unchanged over the weekend. As such, it's no surprise to see mortgage rates right in line with Friday's latest levels. For the average lender, this means conventional 30yr fixed rates are at the upper boundary of a narrow range stretch back to September 4th. It was the September 5th jobs report that sparked a rate rally that resulted in the lowest levels in over a year. Due to the government shutdown, that was the last time a jobs report was released. No that the government is reopen, the jobs report that normally would have come out at the beginning of October will be released this Thursday. While it likely won't be as potent as a regularly-scheduled release in terms of its impact on rates, it can nonetheless result in some volatility. Before that, we'll get the latest Fed meeting minutes on Wednesday (a more detailed account of the Fed's discussion that took place 3 weeks ago). With numerous recent Fed speakers calling a December rate cut into question, this particular installment of Fed Minutes could have a bigger impact than normal.
Mortgage rates were only modestly higher on Friday, but because of the narrow prevailing range and previous increases this week, that brings us right in line with 2-month highs. Bonds (which dictate rates) began the day with promise. There was heavy buying (good for rates) in the 7am hour. This coincided with stocks challenging their lowest levels in weeks. But both stocks and bonds bounced back in the 9am hour. Bonds ultimately erased all of the morning's gains and, thus, the hope for today's mortgage rates to be lower than yesterday's.
Mortgage rates rose somewhat sharply following the late October Fed meeting but have been in a relatively narrow range so far in November. The range is so narrow, in fact, that yesterday's average rate was at the bottom of that range while today's rate is closer to the highs. Given the minimal overall movement, there's no compelling need to account for underlying market motivations. To be sure, there was no new economic data that caused weakness in the underlying bond market. That leaves only the reopening of the government as a scapegoat. Several days ago, when the end of the shutdown came into focus, we cautioned that it was more likely to put slight upward pressure on rates whenever it was confirmed. This is consistent with the movement seen today. More meaningful momentum will depend on the economic data that is once again in the cards now that government agencies are open. The only caveat is that we're still waiting on updated release schedules for those reports.
Mortgage rates are based on bond market movement and bonds are much stronger today compared to Monday. Although bonds were closed yesterday for the Veterans Day holiday, there was an important piece of economic data that suggested lower rates today. The data in question was the new weekly payroll count from ADP. Whereas October's monthly data (which came out last week) suggested 42k new jobs created, yesterday's weekly data showed an 11k DECREASE in the payroll count. Decreases are uncommon outside recessions and recessions tend to push interest rates lower. The average lender moved down to the lowest levels since October 31st, but just barely. The typical correlation between bonds and mortgages suggested a slightly bigger move.
