Calm Day to End A Calm Week
While Friday itself may not have resulted in a rally for the broader bond market, it was nonetheless just as calm as any other day this week in terms of volatility. That's a bit more impressive considering it was the only day with big-ticket econ data. Overall, the week was marked by slow, steady gains for no particular reason. With that, the entirety of August, post-jobs-report did exactly what it was supposed to do. Specifically, it held a narrow enough range to avoid challenging the range set by the last jobs report day. The upcoming week--while shorter than normal due to the Labor Day holiday--is infinitely more capable of producing bond market volatility. Even the supporting actors are arguably heavy hitters in terms of econ data. Friday's jobs report speaks for itself. Bottom line: additional labor market weakness could easily help bonds break new ground at lower yields while unexpected resilience could firmly reinforce recent floors.
Econ Data / Events
Core PCE (m/m) (Jul)
0.3% vs 0.3% f'cast, 0.3% prev
Core PCE Inflation (y/y) (Jul)
2.9% vs 2.9% f'cast, 2.8% prev
Inflation-Adjusted Spending (Consumption) (Jul)
0.5% vs 0.5% f'cast, 0.3% prev
Personal Income (Jul)
0.4% vs 0.4% f'cast, 0.3% prev
Wholesale inventories mm (Jul)
0.2% vs 0.2% f'cast, 0.1% prev
Chicago PMI (Aug)
41.5 vs 46 f'cast, 47.1 prev
Consumer Sentiment (Aug)
58.2 vs 58.6 f'cast, 61.7 prev
Sentiment: 1y Inflation (Aug)
4.8% vs 4.9% f'cast, 4.5% prev
Sentiment: 5y Inflation (Aug)
3.5% vs 3.9% f'cast, 3.4% prev
Market Movement Recap
08:34 AM Minimal movement after PCE data. MBS are down 2 ticks (.06) and 10yr yields are up 1.4bps at 4.22.
01:03 PM Slightly stronger heading into PM. MBS down only 1 tick (.03) and 10yr up 1.9bps at 4.224
It was a very slow and steady week for mortgage rates. On all 5 days, the average top tier 30yr fixed rate moved by 0.02% or less. This is a small enough change that the average borrower wouldn't see any detectable difference in a loan quote from one day to the next. But due to most of the changes being toward lower rates, Thursday and Friday would be modestly but measurably better than the first 3 days of the week. This is an ideal scenario for prospective borrower and mortgage professionals. One of the most frustrating and challenging realities of this industry is the extent to which rates can change over short periods of time. So not only did we enjoy the lowest rates in more than 10 months, but volatility was essentially non-existent to boot! It's not a huge surprise to see this sort of stability given that there were no big-ticket risks on the event calendar this week. That changes in a major way in the week ahead. Right from the outset on Tuesday (Monday is a Federal holiday), there are relevant economic reports on all 4 days. Friday's jobs report is especially important considering it was the last jobs report that was primarily responsible for the recent rally to 10-month lows. Bottom line: to whatever extent it was unlikely that the outgoing week would see much volatility, the forthcoming week is likely to be just the opposite, for better or worse.
There are two big picture inflation reports in US that address consumer prices: CPI and PCE. Of the two, PCE is broader and more highly regarded by policymakers. The downside is that it comes out about 2 weeks later for the same month of price data. PCE is also easier to forecast due to other inflation data being out earlier in the month. As such, it's less common to see big deviations from forecasts and today was no exception with all monthly and annual numbers perfectly hitting expectations. Unsurprisingly, bonds haven't really changed from opening levels.
One of the only interesting developments (debatably, perhaps) is that the "supercore" reading (core services inflation excluding housing) was 0.1% lower in PCE versus the figures reported by bloomberg that were extrapolated from CPI 2 weeks ago. Supercore is still slightly elevated and has been trending higher, but 0.390 is a lot better than 0.481 (reported with CPI) when it comes to inflation staying out of the way of a Fed rate cut.
“The hardness of the butter is proportional to the softness of the bread.” Proportionality is important, whether in a restaurant or in a lender watching adjustable-rate loans (where the market favors credit unions and banks). With short-term rates dropping relative to long-term rates, the adjustable-rate mortgage market share has increased. Lenders that I have spoken with (mostly bank and credit union folks) say that the vast majority of ARM applications are 5-year, 7-year, and 10-year products, which, for anyone who’s been in the business for 25 years, is a shift from the mid-2000s when we had various types of 1-year ARMs, along with 3/1 and 5/1 products. For potential borrowers who have watched their landlords change rental rates, it may seem like their monthly payments are adjustable. But unfortunately for lenders, renting is cheaper than buying in 49 out of 50 MSAs with an average savings of $908 a month. Pittsburgh was the only MSA where buying is cheaper. The worst MSA? Austin, where it costs $1,467 to rent a starter home and $3,150 to buy one. More evidence of an unaffordable housing market: the homeownership rate has fallen to the lowest level since 2019. The drop affected all age groups, with the 45-54 age group seeing the largest percentage decline. (Today’s podcast can be found here and this week’s is sponsored by Arrive Home. Arrive Home helps mortgage lenders connect creditworthy buyers with down payment assistance and affordable homeownership solutions, offering tools that empower lenders and uplift communities. Hear an interview with MBA’s David Upbin and Arch MI’s Kevin Popoli on the Mortgage Banking Bound program and how it is preparing college students for careers in mortgage banking.)
Generally Exciting, But Specifically Boring
Heading into the present week, it was incredibly unlikely that we'd see any exciting volatility in the bond market this week. At the very least, we knew that it was really only Friday's PCE data that carried any notable volatility potential. With 4 days down, the "boring" narrative has prevailed. Like every other day this week, Thursday saw mild movement and low volatility with very little connection between events and market movement. But as it happens, the mild movements have all been in the same direction this week, and they're starting to add up. To wit: 10yr yields just hit their lowest 3pm CME close since August 4th and the 2nd lowest since April. MBS are doing even better and mortgage rates reflect that.
Econ Data / Events
Jobless Claims
229.0K vs 230K f'cast, 235K prev
Continued Claims
1954.0K vs 1970K f'cast, 1972K prev
Core PCE Prices QoQ FinalQ2
2.5% vs 2.6% f'cast, 3.5% prev
Corporate profitsQ2
2.0% vs -3.3% prev
GDPQ2
3.3% vs 3.1% f'cast, -0.5% prev
GDP deflatorQ2
2.% vs 2% f'cast, 3.8% prev
GDP Final SalesQ2
6.8% vs 6.3% f'cast, -3.1% prev
Market Movement Recap
09:29 AM Flat overnight and little changed since data. MBS down 1 tick (.03) and 10yr up less than half a bp at 4.24
12:32 PM Best levels of the day heading into 7yr auction. 10yr down 2.2bps at 4.213. MBS up 1 tick (.03).
03:37 PM Mostly flat in PM hours. MBS still up 1 tick (.03) and 10yr down 2.2bps at 4.213
Watching Rates
Check our some recent articles and posts about current rates.
It was a very slow and steady week for mortgage rates. On all 5 days, the average top tier 30yr fixed rate moved by 0.02% or less. This is a small enough change that the average borrower wouldn't see any detectable difference in a loan quote from one day to the next. But due to most of the changes being toward lower rates, Thursday and Friday would be modestly but measurably better than the first 3 days of the week. This is an ideal scenario for prospective borrower and mortgage professionals. One of the most frustrating and challenging realities of this industry is the extent to which rates can change over short periods of time. So not only did we enjoy the lowest rates in more than 10 months, but volatility was essentially non-existent to boot! It's not a huge surprise to see this sort of stability given that there were no big-ticket risks on the event calendar this week. That changes in a major way in the week ahead. Right from the outset on Tuesday (Monday is a Federal holiday), there are relevant economic reports on all 4 days. Friday's jobs report is especially important considering it was the last jobs report that was primarily responsible for the recent rally to 10-month lows. Bottom line: to whatever extent it was unlikely that the outgoing week would see much volatility, the forthcoming week is likely to be just the opposite, for better or worse.
There is no singular, official primary source for mortgage rate levels. The going rate is whatever can be locked/closed at any given lender. As such, we rely on surveys and data aggregations in order to routinely monitor the probable going rate. The longest-standing weekly survey from Freddie Mac was updated today and, while it showed a decline to the lowest levels since October 2024 (something we agree with), it is too slow-moving to reflect the current reality. Freddie's survey showed 6.56% today, and this would be based on the average of the 5 days from last Thursday through yesterday. MND tracks daily rates based on objective rate sheet data from multiple lenders. We had the average top tier rate at 6.62% last Thursday, but it has fallen since then. To be precise, it fell quickly on Friday after Fed Chair Powell's speech at Jackson Hole. From there, we've been in a narrow range this week, but each of the past 3 days have seen a modest tick lower. The net effect is an index level of 6.50% today--the lowest we've seen since October 3rd, even if only a hair lower than yesterday. It's important to understand what 6.50% means in the context of our index. To paraphrase our methodology, this is a best-case-scenario rate that assumes a 780+ credit score and 25% down payment on an owner-occupied purchase loan within the conforming loan limit. 6.50% would be a competitive average. Some lenders will be higher and lower--especially if buydown points come into play.
It continues to be the case that day-to-day changes in average mortgage rates are very small. Today was no exception in that regard. Nonetheless, today represents a technical "record low" for 2025 with average rates edging just slightly lower than those seen on August 22nd and 26th. Our index (which tracks top tier, conventional 30yr fixed rates for ideal scenarios) is now 6.51%, the lowest it's been since October 3rd 2024 when it was 6.26%. Virtually all of the recent improvement in rates followed the August 1st jobs report. Everything since August 4th has transpired in a relatively narrow range. There was no new development that accounted for today's improvement--just a random drift that happened to work out in our favor.
Mortgage rates tend to move at least a little every day although they haven't been moving too much in the bigger picture recently. The only truly memorable move int he past few months occurred after the August 1st jobs report. It resulted in a 2-day drop from 6.75% to 6.57%. The next closest contender was last Friday's reaction to Fed Chair Powell's Jackson Hole speech which took the index from 6.62 to 6.52. So far this week, we've been holding very close to those levels. Yesterday saw a modest bump and today pushed rates back down to Friday's levels. The end. This week's movements could be classified as incidental, random drift. Such a trend is a logical interlude separating the news and events that actually matter to the big picture rate trend. Barring a major, unexpected development, the next high-consequence event is the jobs report due out next Friday. It would be no surprise to see a fairly drifty trend prevail until then.
