Late Day Volatility on Tariff Speech
The long-awaited tariff speech took markets for a ride in both directions this afternoon. After the dust settled, the net effect was "buy bonds, sell stocks." Notably, that was a sharp departure from the initial net effect during the early part of Trump's speech. The ultimately friendly result was enough to get Treasuries back into positive territory and for MBS to get sorta close. In the bigger picture, the volatility didn't really matter as both stocks and bonds remained in the same old ranges.
Econ Data / Events
ADP Employment
155k vs 105k f'cast, 77k prev
Market Movement Recap
08:23 AM Stronger overnight and no major reaction to ADP data. MBS up an eighth of a point and 10yr down 3.6bps at 4.127
11:50 AM Losing ground as stocks rally. 10yr up 1.7bps at 4.179 and MBS unchanged.
12:29 PM More weakness. MBS down an eighth of a point now and 10yr up 4.8 bps at 4.21
04:19 PM 10yr yields are up 6.7bps at 4.23 and MBS are down 6 ticks (.19) on the day and more than a quarter point from rate sheet print times.
Mortgage rates didn't move much today, which is pretty crazy considering the volatility present in financial markets in the afternoon. That's when the long awaited tariff announcement speech took place. There was always a decent chance of a whipsaw in response and a whipsaw is what we got. Fortunately, the net effect for the bond market (bonds dictate interest rates) was positive. In other words, interest rates received good news while stocks received bad news. The catch is that bond had been having a somewhat downbeat day until then. As such, the favorable reaction to the tariff news merely got the bond market back to suggesting fairly flat interest rates compared to yesterday's latest levels. Most lenders will wait until tomorrow to make any friendly adjustments, and that assumes bonds hold at the same levels overnight. Bottom line: plenty of market volatility in the afternoon, but ultimately implying very little change in mortgage rates.
This morning's ADP Employment data was the only potential market mover for bonds, at least as far as scheduled data is concerned. Despite coming out a bit higher than expected, bonds opted to maintain the rally trend that had been intact since the start of European trading overnight. That resulted in moderate gains at the start of the 9:30am NYSE open, but things changed from there. Stocks bounced higher and brough bond yields along for the ride. The net effect is modest weakness, and no major change to the sideways grind in the bigger picture. Things could change for better or worse this afternoon after the tariff announcement expected at 4pm ET.
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Data Helped, But Wild Cards Remain on Deck
This morning's economic data wasn't immediately and obviously worthy of credit for the bond rally that followed, largely because the bond rally that followed was fairly small. Most of the day's gains were in place beforehand. The data (lower ISM/employment, job openings, and job quits) helped keep bonds near the stronger end of the day's range, and thus, the stronger end of the 5 week range. There's more data on Wednesday, but the biggest wild card may be the long-awaited tariff announcement in the afternoon.
Econ Data / Events
ISM Manufacturing
49.0 vs 49.5 f'cast, 50.3 prev
Prices 69.4 vs 65.0 f'cast
Employment 44.7 vs 47.6 prev
Job openings (lower = better for rates)
7.568m vs 7.630m f'cast
Job Quits (lower = better for rates)
3.195m vs 3.266m prev
Market Movement Recap
10:05 AM Stronger overnight and at best levels after 10am data. MBS up 6 ticks (.19) and 10yr down 5.1bps at 4.154
12:55 PM Sideways and slightly choppy all morning. MBS still up 6 ticks (.19) and 10yr down 4.6bps at 4.161
04:07 PM Still flat. MBS up 6 ticks (.19) and 10yr down 4.1bps at 4.165.
Watching Rates
Check our some recent articles and posts about current rates.
Mortgage rates didn't move much today, which is pretty crazy considering the volatility present in financial markets in the afternoon. That's when the long awaited tariff announcement speech took place. There was always a decent chance of a whipsaw in response and a whipsaw is what we got. Fortunately, the net effect for the bond market (bonds dictate interest rates) was positive. In other words, interest rates received good news while stocks received bad news. The catch is that bond had been having a somewhat downbeat day until then. As such, the favorable reaction to the tariff news merely got the bond market back to suggesting fairly flat interest rates compared to yesterday's latest levels. Most lenders will wait until tomorrow to make any friendly adjustments, and that assumes bonds hold at the same levels overnight. Bottom line: plenty of market volatility in the afternoon, but ultimately implying very little change in mortgage rates.
While interest rates continue operating in a range that is generally flat and narrow over the past 5 weeks, it's also true that today's rates are on the lower edge of that range. Because there's not much of a gap between the highs and the lows, it didn't take a major move to facilitate today's little victory, but it is notable that we've seen 3 victories in a row now. In other words, rates have fallen by a modest amount on each of the past 3 business days. To reemphasize the narrowness of the range, we were at the highest levels 4 days ago. Today's victory wasn't necessarily a given. It relied on the bond market's reaction to today's economic data. Bonds drive rates, and econ data can be a key motivation for bonds. Weaker data tends to help bonds improve, thus pushing rates lower. Several of this morning's economic reports were slightly weaker than expected. In and of themselves, they may not have helped rates, but with the unified message of economic uncertainty, it was enough to usher rates toward the lower range boundary.
"Sideways" has been the dominant theme for mortgage rates for well over a month now. The average top tier 30yr fixed rate fell below 6.82% on February 25th, and moved down to 6.70% the following week. We haven't been outside of that range since then. Today was just another day in that regard, or perhaps even a prime example considering it was smack dab in the middle of that range. While it's not always apparent by the time mortgage lenders set rates for the day, the underlying bond market continues experiencing volatility behind the scenes. Recently, that volatility often aligns with the stock market as investors react to the economic implications of fiscal policies. This could cause more movement on Wednesday when tariff details are expected to come out. In addition, this week's economic data is more than capable of moving the needle--especially Friday's jobs report. As always, there's no way to know which direction rates will move in response to key events. If there were, investors would move in that direction before the event, thus taking the probability back to 50% for either outcome.
First thing's first before anyone gets too excited: yes, rates fell on Friday, but not significantly. The average lender is still a bit closer to the higher end of the recent range. In addition, the recent range is quite narrow with average top tier 30yr fixed rates never straying too far from 6.75 since late February. What made today interesting was the fact that rates moved lower at all. As we often discuss, rates take lots of guidance from key economic reports such as this morning's PCE price index (a key inflation report). PCE arguably had more potential than any other economic data this week to cause a reaction in rates. Conventional wisdom is clear on the reaction function: If inflation comes in higher than expected, rates are more likely to move up, all other things being equal. In today's case, rates dropped even though inflation rose. What's up with that? One mitigating factor is the fact that the unrounded PCE numbers were much closer to what the market was expecting. In other words, inflation looked like it rose more than it actually did due to the custom of rounding the numbers to the nearest tenth of a percent. Beyond that, it's also plain to see that the stock market fell significantly today--something that's recently been very likely to correlate with interest rates moving lower. Last but not least, there are some advanced considerations that have to do with month and quarter end trading practices. A detailed explanation is beyond the scope of our coverage, but the gist is that month/quarter end can create rate movement in either direction without any motivation from economic data. With Monday being the last day of the month/quarter, we're certainly seeing some influence from this type of trading.
