Modest Gains After Mid-Day Volatility
With only a few exceptions, bonds have been a rudderless ship during the government shutdown. With the backlogged data returning in a slow and uncertain fashion, rudder repairs are similarly slow. In today's case, bonds benefited from overnight strength in overseas bond markets and a bit of ongoing weakness in stocks. The surprise release of stale jobless claims data did nothing to inspire and there was limited benefit from another negative print in the weekly ADP numbers. As soon as EU bonds closed for the day, US bonds began selling off. The damage was short-lived and well contained. The net effect was another in-range day ahead of higher consequence events like Wednesday's Fed minutes or Thursday's jobs report.
Econ Data / Events
ADP Weekly Payrolls
-2.5k vs -11.25k prev
Jobless Claims (October 18th)
232k vs 223k f'cast, 219k prev
Factory Orders
1.4 vs 1.4 f'cast, -1.3 prev
Builder Confidence
38 vs 37 f'cast, 37 prev
Core Durable Goods (Aug)
0.4 vs 0.6 f'cast/prev
Market Movement Recap
09:56 AM Stronger overnight with some additional gains after ADP data. MBS up 6 ticks (.19) and 10yr down 4.8 bps at 4.091
11:39 AM MBS up 3 ticks (.09) but down an eighth from AM highs. 10yr down 1.5bps at 4.125 but up 4bps from AM lows.
04:18 PM Off the weakest levels. MBS up an eighth and 10yr down 2bps at 4.119
With economic data being the most consistent source of motivation for rates, the market has been eager for it to return with the reopening of the government. While some higher profile reports have been rescheduled for the coming days (i.e. on Thursday, we'll get the jobs report that we were supposed to get in early October), most updated release dates remain TBD. Then there are the "surprise" releases--reports that completely skipped the step of being officially rescheduled and were simply released at a random moment with no warning. Such was the case with Jobless Claims data this morning. Not to be confused with "the jobs report," weekly jobless claims numbers are inferior in terms of their ability to set the tone for interest rates. To be fair, they CAN have a moderate impact at times, but their ability to do so is nowhere close to that of the monthly jobs report. Case in point, today's belated jobless claims data had no impact. Nonetheless, the reemergence of government econ data is an important proof of concept when it comes to getting an accurate sense of where rates should be heading. While not technically econ data and not affected by the shutdown, Wednesday brings a scheduled event that can be just as relevant as many government reports. At 2pm ET, the Fed will release the minutes of its meeting from late October. This isn't a rate cut opportunity, but it could shed additional light on the odds of a cut at the mid-December meeting.
Supposedly commercial air travel is back to normal, good for anyone coming in for the Mortgage Bankers Association of St. Louis event tomorrow and Thursday’s Mortgage Bankers Association of Kansas City annual luncheon. Speaking of Missouri, the Pony Express ran between St. Joseph and Sacramento for 18 months in 1860–1861, put out of business by the telegraph. (I had an ancestor, Frank “Deafy” Derrick, who rode for the Pony Express.) The telegraph was a great example of “better, faster, cheaper” winning out. Non-Agency investors, such as non-QM, DSCR, HELOC, and 2nd investors have certainly gained market share at the expense of the Agencies, namely Freddie Mac and Fannie Mae, perhaps for the same reason. The FHFA, Fannie, and Freddie have been distracted with Director Pulte sending out information on mortgage portability, 50-year mortgage amortization, tech companies doing business deals (with the GSEs with possibly an ownership stake in their companies), assumability, while Fannie Mae allegedly shared pricing information with Freddie Mac. (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 ICE’s John Hedlund on how mortgage leaders can scale sustainably, unlock new innovation in risk and operations, balance efficiency with human-centered borrower experience, and prepare for the next major shift in the housing and lending cycle.)
We've seen a clumsy, confused return of various economic reports this morning (several reports were no previously announced with rescheduled release dates). Thankfully, the surprise releases were not big-ticket items. The most relevant report of the morning was ADP's new weekly job count ("NER Pulse") which showed another decline. By the time it came out, bonds had already rallied nicely in the overnight session. This suggests traders were already keen to buy the dip in prices that resulted in yields hitting the top of the recent range. The Cleveland Fed WARN notices (which came out late yesterday) could have helped get the party started.
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
Watching Rates
Check our some recent articles and posts about current rates.
With economic data being the most consistent source of motivation for rates, the market has been eager for it to return with the reopening of the government. While some higher profile reports have been rescheduled for the coming days (i.e. on Thursday, we'll get the jobs report that we were supposed to get in early October), most updated release dates remain TBD. Then there are the "surprise" releases--reports that completely skipped the step of being officially rescheduled and were simply released at a random moment with no warning. Such was the case with Jobless Claims data this morning. Not to be confused with "the jobs report," weekly jobless claims numbers are inferior in terms of their ability to set the tone for interest rates. To be fair, they CAN have a moderate impact at times, but their ability to do so is nowhere close to that of the monthly jobs report. Case in point, today's belated jobless claims data had no impact. Nonetheless, the reemergence of government econ data is an important proof of concept when it comes to getting an accurate sense of where rates should be heading. While not technically econ data and not affected by the shutdown, Wednesday brings a scheduled event that can be just as relevant as many government reports. At 2pm ET, the Fed will release the minutes of its meeting from late October. This isn't a rate cut opportunity, but it could shed additional light on the odds of a cut at the mid-December meeting.
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.
