Big, Early Rally, Then Flat All Day
On any given day in the bond market, Sometimes everything that's going to happen ends up happening in the morning, thus leaving the rest of the day to drift almost perfectly sideways. Thursday was one of those days. Overseas markets dogpiled on Wednesday afternoon's tariff reaction, sending stocks ripping lower and bond yields following. By the time US markets began active trading, most of the gains were in for bonds. MBS, specifically, barely budged from 11:40am through the close.
Econ Data / Events
Jobless Claims
219k vs 225k f'cast, 225k prev
Continued Claims
1.903m vs 1.860m f'cast, 1.847m prev
ISM Services
50.8 vs 53.0 f'cast, 53.5 prev
ISM Employment
46.2 vs 53.9 prev
ISM Prices
60.9 vs 62.6 prev
Market Movement Recap
08:35 AM Stronger overnight as tariff rally extends. MBS up a quarter point and 10yr down 8bps at 4.044
01:01 PM Sideways near highs. MBS up 9 ticks (.28) and 01yr down 7.5bps at 4.048
04:17 PM Still sideways! MBS up 10 ticks (.31) and 10yr down 8.3bps at 4.041
Yesterday afternoon's tariff announcement sent financial markets on a ride that ultimately resulted in sharply lower stock prices and moderately lower bond yields. Stocks don't always correlate with bond yields, but that has been a common pattern since late February. The correlation between bond yields and mortgage rates, on the other hand, is perpetual and nearly flawless. After all, "yield" is just another word for "rate." Additionally, mortgage rates are based on mortgage-backed securities (MBS) which are basically bonds. All that to say: rates have been benefitting from the market chaos that's been hurting stocks, and stocks got hurt quite a bit over the past 24 hours. Considering the average 30yr fixed rate was already close to its lowest levels since mid October yesterday, it's no surprise to see an official breakout today. [thirtyyearmortgagerates] Tariffs and stock market volatility are not the only games in town for rates. Economic data is also very important and tomorrow's jobs report is typically the most important economic report of any given month. Depending on the results, it could help rates move even lower or bounce back up into the recent range.
The Chinese curse, “May you live in interesting times” can easily be applied to the residential mortgage business in the last month or so. This week and yesterday was no exception, with some brokers benefitting from both Trump’s tariffs (fully expected to slow the economy, driving rates lower) and United Wholesale trying to keep its market share while Rocket Companies is spending about $11 billion to cement its place in real estate transactions and be in touch with a potential borrower from shopping for a home all the way to servicing it. (More below.) Meanwhile, just in time for the MBA’s Advocacy event next week in Washington, DC, House Republicans, led by Rep. French Hill, R-Ark., have sent letters to top US financial regulators urging them to reverse several Biden-era banking rules. Their priorities include rescinding the revamped Community Reinvestment Act (CRA), rolling back CFPB rules on overdraft fees and medical debt, and pausing Basel III reforms. The lawmakers said recent regulations have hurt innovation and access to financial services, especially for families and small businesses. (Today’s podcast can be found here and this week’s is sponsored by Calque. Calque provides a binding backup offer on your borrower’s departing residence to clear the existing mortgage balance and closing costs in 48 business hours or less. Today’s features an interview with Waymaker Mortgage’s Scottie Campbell and Revest Loans’ Jim Black on how buy-before-you-sell loan products are helping drive up origination volumes.)
While plenty of uncertainty remains over the finer points of Wednesday afternoon's tariff announcement, markets have heard enough to brace for impact on global trade. That "bracing" is being traded in the form of a flight to safety (sell stocks, buy bonds) that began yesterday and continued overnight. 10yr yields were already close to 4.0% before this morning's weaker ISM Services data, and have been inching closer since then.
That said, the additional "inching" isn't really in response to ISM. Almost all of today's trading looks like an afterthought compared to yesterday's initial tariff reaction and the early overnight trading.
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.
Watching Rates
Check our some recent articles and posts about current rates.
Yesterday afternoon's tariff announcement sent financial markets on a ride that ultimately resulted in sharply lower stock prices and moderately lower bond yields. Stocks don't always correlate with bond yields, but that has been a common pattern since late February. The correlation between bond yields and mortgage rates, on the other hand, is perpetual and nearly flawless. After all, "yield" is just another word for "rate." Additionally, mortgage rates are based on mortgage-backed securities (MBS) which are basically bonds. All that to say: rates have been benefitting from the market chaos that's been hurting stocks, and stocks got hurt quite a bit over the past 24 hours. Considering the average 30yr fixed rate was already close to its lowest levels since mid October yesterday, it's no surprise to see an official breakout today. [thirtyyearmortgagerates] Tariffs and stock market volatility are not the only games in town for rates. Economic data is also very important and tomorrow's jobs report is typically the most important economic report of any given month. Depending on the results, it could help rates move even lower or bounce back up into the recent range.
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.
