Logical Pull-Back on Tamer Tariff Talk, But Mortgages Outperform
If there was only one event to be aware of on Friday, it was a Trump comment around 7:10am ET in which The President said that the recently-announced 100% tariff on China was probably not sustainable. Stocks, bond yields, and volumes spiked instantly and nothing much happened for the rest of the day. Fortunately for the bigger picture, Thursday's mid-day drama caused a big enough bond rally that Friday's pull-back only managed to erode about half the gains. The news is even better for mortgage rates. Lenders had a big enough cushion from Thursday's volatility that Friday's pull-back merely resulted in rates holding steady on average. That means the average lender is fairly close to September's lows which are close enough to the lowest rates in 3+ years.
Econ Data / Events
NY Fed Manufacturing
10.7 vs -1.0 f'cast, -8.7 prev
Market Movement Recap
10:51 AM Slightly weaker overnight. MBS down an eighth and 10yr up 4.1bps at 4.011
02:20 PM Slight recovery, but mostly flat all day. MBS down 1 tick (.03) and 10yr up 3.1bps at 4.00
The average top tier 30yr fixed rate was unchanged on Friday despite the bond market being slightly weaker. Normally, weaker bonds mean higher rates, but the timing of intraday market movement matters. In today's case, bonds are still much stronger than the first half of yesterday, and only weaker when compared to closing levels. Because mortgage lenders prefer to set rates once per day (only adjusting after a certain threshold of market volatility), the average lender hadn't yet fully adjusted to yesterday afternoon's bond market gains. In plainer terms, mortgage lenders had a bit of a cushion today and it was perfectly soaked up by the modest losses in the bond market. By remaining unchanged, the average rate is officially in line with the lowest levels in just over a month. Apart from that, there are only a handful of days with lower rates going all the way back to late 2022.
By process of elimination and ongoing forensic efforts, it's becoming more and more clear that yesterday's mystery rally in the short end of the yield curve was a product of liquidity/reserve stress in short-term funding markets. While the regional bank drama may have added fuel to the fire in a roundabout way, it was neither the match nor the flame. Episodes like this happen from time to time, especially in April and October as corporate tax deadlines create large short-term funding needs that can put strain on reserve balances (already a topic of conversation for the Fed recently, as they ponder the timing of the end of QT). In short, the market briefly worried that reserves were going to run too thin and the Fed would be forced to address it in a way that benefited short-term rates. The shortest term rates (like day to day SOFR) couldn't benefit due to immense short-term borrowing needs and scarce reserves, so any market concern was forced to play out in the slightly longer term (a few months in the future vs a few days). With the more dire fears in the rearview (T, bonds are backing away from the panic trade a bit this morning, but the real catalyst was a 7:12AM newswires citing Trump saying Chinese tariffs will not be sustainable.
Under the category of careers that are, or will be, impacted, by artificial intelligence, attorneys are inevitably on it. Here’s a tale of a lawyer caught using AI while explaining to the Court why he used AI. In other legal mortgage news, California mandated forbearances for mortgage borrowers affected by wildfires. Meanwhile, is disaster assistance based on politics? Apparently California is not receiving any disaster assistance from the federal government from the fires nine months ago, and the city of Los Angeles joined a coalition of cities, counties, and local agencies in a lawsuit against the federal government over FEMA funding. Certainly the shutdown, recently begun, is impacting lenders, and in today’s Last Word at 1PM ET, Brian Vieaux, Courtney Thompson, and Christy Soukhamneut discuss how the government shutdown is impacting lenders and the broader housing market, rates hitting new year lows, and Chair Powell’s recent comments signaling a shift toward concerns over labor market weakness. (Today’s podcast can be found here and this week’s are sponsored by Floify, an industry-leading point of sale platform. With Floify’s new Dynamic AI feature, lenders can modify applications with no coding required and rely on AI to autofill key application fields, allowing borrowers to fill out only a few fields relevant to their needs. Hear an interview with Finance of America’s Adam Potafiy on his session tomorrow at NAMB National with his colleagues Jonathan and Jessica about reverse mortgages and how they’re being reengineered for the next generation of clients.)
Seriously... No One Seems to Know
Today's most prominent feature was a large, rapid move in Fed Funds Futures and other short-term rate metrics. Longer term rates benefited as well, but short term rates clearly led the rally. The issue is that there was no obvious catalyst. Some reports suggested "regional bank fears," but it's hard to document that with the timing of market movement. Other considerations may include comments from Fed's Waller, but those were over 2 hours before the bond rally. To be sure, regional banks had a terrible day, but there too, the biggest volume and volatility transpired about 2 hours before the move in Fed Funds Futures. Whatever the truest, most nitty-gritty catalyst, we'll take it!
Econ Data / Events
NY Fed Manufacturing
10.7 vs -1.0 f'cast, -8.7 prev
Market Movement Recap
08:59 AM Slightly stronger overnight and limited reaction to Philly Fed. MBS up 1 tick (.03) and 10yr down 1.3bps at 4.016
09:11 AM Quick reversal after 10s hit 4.0%. Now up half a bp to 4.034. MBS down a quick 3 ticks (.09) and just over an eighth from AM highs.
11:43 AM Bouncing back a bit now. MBS unchanged and 10yr down nearly 1bp at 4.019
01:12 PM Big mystery rally from 12:15 to 12:45. 10yr down 3.8bps at 3.991. MBS up and eighth.
03:53 PM Near best levels. MBS up 6 ticks (.19) and 10yr down 5.6bps at 3.973
Watching Rates
Check our some recent articles and posts about current rates.
The average top tier 30yr fixed rate was unchanged on Friday despite the bond market being slightly weaker. Normally, weaker bonds mean higher rates, but the timing of intraday market movement matters. In today's case, bonds are still much stronger than the first half of yesterday, and only weaker when compared to closing levels. Because mortgage lenders prefer to set rates once per day (only adjusting after a certain threshold of market volatility), the average lender hadn't yet fully adjusted to yesterday afternoon's bond market gains. In plainer terms, mortgage lenders had a bit of a cushion today and it was perfectly soaked up by the modest losses in the bond market. By remaining unchanged, the average rate is officially in line with the lowest levels in just over a month. Apart from that, there are only a handful of days with lower rates going all the way back to late 2022.
Despite a stark absence of any truly inspiring events, interest rates have managed to put in two fairly serious days of movement. In today's case specifically, there was an obvious intraday surge in the underlying bond market. While that surge wasn't readily attributable to any data or news headline, it prompted many mortgage lenders to reissue lower rates in the afternoon. As conventional 30yr fixed rates move down from the 6.3's toward the 6.1's, this is a zone that can see larger than normal movement for reasons laid out back in early September (A Quick Note on Why Rates Seem to Drop More Quickly as They Approach Certain Thresholds). We're beginning to see some of that slippery slope behavior in our rate index over the past few days as 6.125% comes closer to be being a more widespread top-tier rate quote. As ever, the real question is whether we continue heading in that direction or if we're due a bounce. As ever, there's no way to know ahead of time. The level of improvement seen over the past week is already arguably surprising.
Mortgage rates are based on bonds and bonds are trading at their best levels since September 17th. Of course there are different kinds of bonds, so we should specify that we're talking about the bonds that are specifically tied to mortgages (MBS or mortgage backed securities). With this in mind, it's no surprise to see mortgage rates also at the lowest levels since September 17th. The same was true yesterday, but today marked another incremental improvement. Compared to yesterday, the bond market was actually fairly flat. So why did rates improve? It has to do with timing. Yesterday afternoon saw a decent rally in bonds (rallies = lower rates), but it was late enough in the day that many lenders didn't bother adjusting their mortgage rate offerings until this morning. Bottom line: mortgage lenders were getting caught up with yesterday's bond market rally.
Last week ended with mortgage rates dropping to their best levels since September 17th. Over the weekend, the underlying bond market maintained the gains seen on Friday afternoon, thus allowing most lenders to set rates at least as low as they were at that time. The average lender is actually just slightly lower today, thus making this another new multi-week low. The counterpoint is that the range is still relatively narrow, which each day during this stretch (roughly 4 weeks) falling inside a range of 6.31 to 6.39. As always, keep in mind that the MND index is an average top tier rate (i.e. high credit score, high downpayment, owner occupied, etc.). There were no major sources of volatility on the calendar today although a speech from Fed Chair Powell had the potential to cause some. The event calendar will remain more silent during the government shutdown. Once it's over, volatility potential will increase.
