Two-Way Trading But Not Much Day-Over-Day Movement
Bonds had a solid morning, adding moderately to yesterday's rally and taking yields well into the lowest levels since last Friday. But from just after the 9:30am NYSE open, bonds leaked slowly weaker, ultimately ending the day closer to unchanged levels. In the bigger picture, nothing interesting or significant happened, and December 16th (jobs report day) is set to be the only other obviously tradeable day of 2025.
Econ Data / Events
Jobless Claims
236k vs 220k f'cast
Continued Claims
1838k vs 1950k f'cast
Market Movement Recap
10:23 AM Stronger after claims data. MBS up 6 ticks (.19) and 10yr down 3.6bps at 4.115
12:44 PM MBS up an eighth and 10yr down 2.7bps at 4.123
02:30 PM Gains fading a bit. MBS up only 2 ticks (.06) and 10yr down 1.1bps at 4.14
03:57 PM drifting out at same levels as last update. MBS up 2 ticks (.06) and 10yr down 0.9 bps at 4.142
As is sometimes the case on the day following a Fed day, the bond market carried a bit more momentum in the same direction as yesterday afternoon. Fortunately, the momentum was toward lower rates this time around--a nice break from the past two Fed days which resulted in several days (and weeks) of higher rates. This leaves the average lender roughly in the middle of the range over the past 3 months. These are also the lowest levels seen since last Thursday for the average lender.
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Bonds are adding moderate to yesterday's post-Fed gains. Most of today's rally has followed this morning's jobless claims data, but we wouldn't necessarily give it all the credit. This is a tricky week to try to make sense of jobless claims due to the very late Thanksgiving holiday this year. It threw a wrench in seasonal calculations. In a nutshell, last week's initial claims plummeted due to Thanksgiving and seasonal adjustments didn't help much because, on average, Thanksgiving falls on the 25th (thus, last week's claims were too late in the month to get much benefit from the adjustment). Continued claims magnify the same issue with this week's data (continued claims run 1 week behind initial claims). This is why we have the biggest jump in years in both metrics with one being higher and the other being lower. It's all about seasonal adjustments. If we do our best to look through that, non-adjusted continued claims are the highest in years, and bonds could be paying some attention to that.
This seasonally adjusted chart shows the snap back to reality for initial claims. It would have been a smaller jump if last week wasn't distorted on the low side.
Opposite problem for continued claims, which are reported 1 week later (i.e. you can bank on a big snap back next week):
The following chart shows NON-seasonally adjusted continued claims. With this chart, it's easy to see 2025 running at the highest levels in years. Bonus point for those who see the gray line poking briefly higher only to realize Thanksgiving was on the 11/23 in 2023.
Powell Avoided Throwing Cold Water on Rate Outlook. Bonds Approved
Today's gains ended up being all about Powell's press conference. While there were a few potentially friendly comments (current rates in high end of neutral range, recent job gains overstated, no decision yet on January, inflation coming down), we can also consider that Powell simply avoided the same sort of hawkish reminders seen in the last press conference. On a day where bonds had already been selling fairly aggressively for 2 weeks, this could be all the market needed to breathe a sigh of relief and reinforce the ceiling of the prevailing trading range. All in all a fairly tame Fed day reaction, but one with a happy ending nonetheless.
Econ Data / Events
Employment costs Q3
0.8% vs 0.9% f'cast, 0.9% prev
Market Movement Recap
08:46 AM Slightly weaker overnight and little-changed so far. 10yr up 1.1bps at 4.197. MBS up 2 ticks (.06).
11:29 AM Best levels of the day. MBS up 7 ticks (.22) and 10yr down 2.4bps at 4.162
02:40 PM No major volatility since Fed announcement. Slightly weaker as Powell begins speaking. MBS still up a quarter point. 10yr down 1.3bps at 4.176
03:09 PM MBS up 3/8ths and 10yr down 4.1bps at 4.145.
Watching Rates
Check our some recent articles and posts about current rates.
As is sometimes the case on the day following a Fed day, the bond market carried a bit more momentum in the same direction as yesterday afternoon. Fortunately, the momentum was toward lower rates this time around--a nice break from the past two Fed days which resulted in several days (and weeks) of higher rates. This leaves the average lender roughly in the middle of the range over the past 3 months. These are also the lowest levels seen since last Thursday for the average lender.
The Fed cut its policy rate by 0.25% today and mortgage rates moved lower after the announcement. That said, those two developments are not related. In fact, there was no movement in the bonds that underlie mortgage rates when the rate cut was announced. Instead, the market (and rates) moved in response to Fed Chair Powell's press conference. While there is a mistaken belief that such press conferences "always" result in upward pressure on rates, today shows they can go both ways. Key comments that may have helped: Powell: Job gains could have been overstated in recent months Powell: Growing evidence that inflation is coming down Powell: Rates are now in a high range of neutral The reference to "neutral" means the Fed Funds Rate is near the levels that should neither help nor hurt the economy. Being in the higher end of that range means there could be room for another rate cut or two in 2026. This possibility was already reflected in the rate forecasts that came out with today's announcement, but the market appreciated hearing it from Powell. Up until Powell's press conference, mortgage rates had been little changed from yesterday. Afterward, most lenders made mid-day changes resulting in the lowest rates of the week.
Mortgage rates were surprisingly steady on Tuesday with most lenders roughly in line with Monday's levels. Why surprising? Because the bond market was noticeably weaker and bonds dictate day to day mortgage rate movement. In Tuesday's case, we can actually reconcile the steadiness with the timing of bond market movement. Specifically, bonds didn't lose ground until after the 10am release of the Job Openings data from the Bureau of Labor Statistics. Most mortgage lenders consider bond market levels before 10am when setting rates for the day. The implication is that if bonds are at the same levels tomorrow morning, the average lender would set rates higher. Tomorrow afternoon brings another potential source of volatility in the form of the latest Fed announcement. The most important thing to understand about tomorrow's probably Fed rate cut is that it is NOT a mortgage rate cut. In fact, mortgage rates have been more likely to move higher following recent Fed cuts. Even then, the cut itself is not the news the market is waiting for. Rather, traders are interested to see each Fed member's rate outlook via the quarterly release of the Fed's economic projections. In addition, every Fed meeting includes a press conference with the Fed Chair and bonds have often made the biggest moves in response. Bottom line: the rate cut means nothing for mortgage rates. Volatility will come from the 2pm ET dot plot (the chart that shows each Fed members' rate outlook) and the 2:30pm press conference.
Both stocks and bonds lost ground on Monday. This pushed mortgage rates up near their highest levels in just over 3 months (because mortgages are based on bond prices). To put the 3-month highs in perspective, today's rates are right in line with those seen 2 weeks ago. [thirtyyearmortgagerates] When we see a larger-than-average shift in rates, it's often attributable to an obvious catalyst. These can be things like economic reports, comments from the Fed, or geopolitical developments. In today's case, there are no obvious scapegoats. That said, given the proximity of the next Fed announcement, "pre-Fed jitters" will likely be a popular guess. Ultimately, between Thanksgiving and New Years, we're simply more likely to see random volatility without a clear root cause. Clear connections will be more likely over the next 2 days due to Tuesday's economic data and Wednesday's Fed announcement.
