Boring Week and Next Week Isn't Much More Promising
It's always a bit jarring to go from something like last Friday's jobs report response to a subsequent week with very little movement, but in the grand scheme of things, it may as well have been a 9 day weekend. Actually, make that a 10 day weekend with the upcoming Monday being a holiday closure. Neither PPI nor Consumer Sentiment caused a stir today, but volume suggests traders were willing to react to PPI if it had fallen far from forecasts. In general, we'll need big ticket data to say bad things about the economy in order to recover any decent amount of what was recently lost. To that end, we're waiting all the way until next Thursday morning for the next round of reasonably relevant reports.
Econ Data / Events
M/M Core PPI
0.2 vs 0.2 f'cast, 0.3 prev
Y/Y Core PPI
2.8 vs 2.7 f'cast, 2.4 prev
Consumer Sentiment
68.9 vs 79.8 f'cast, 70.1 prev
1yr inflation expectations
2.9 vs 2.7 prev
5yr inflation expectations
3.0 vs 3.1 prev
Market Movement Recap
08:59 AM slightly weaker overnight with some additional losses after data. MBS down an eighth and 10yr up 3.7bps at 4.098
01:09 PM Back near unchanged in MBS, best levels of the day. 10yr up only 1.1bps at 4.072
03:51 PM Not far from previous update. MBS down 2 ticks (.06) and 10yr up 1.8bps at 4.079
While this week's rates were substantially higher than most of last week's, if we remove a few flashes of volatility, the average lender stayed very close to Monday morning's levels. Wednesday afternoon and Thursday mid-day definitely saw multiple negative reprices, but in each case, the bond market recovered enough to limit the volatility. Compared to last week, it may as well have been a flat line. The following chart shows the mortgage backed securities (MBS) prices that directly dictate mortgage rate movement. Higher prices = lower rates and vice versa. Today's economic data included a wholesale inflation report that has occasionally caused some volatility, but today's installment was not one of them. The bond market improved a bit heading into the afternoon and traded calmly from there. As such, mortgage lenders were not compelled to make any negative mid-day changes after setting this morning's rates very close to yesterday's latest levels. The next time lenders have a chance to set mortgage rates for the day will be Tuesday due to the market closure on Monday for Indigenous Peoples' Day.
Preparing for the next hurricane in Florida? Or Louisiana? Or Texas? Call this really smart or really humorous, it’s up to you. (And no, I don’t know how it fared.) We do, however, know how lenders and vendors are faring. Sure, headlines blared that rates were going down, but as we all know they went up after the Fed’s 50 basis point cut a few weeks ago, and locks have not shot up much, if at all. Looking at September, according to Curinos' new proprietary application index, refinances increased 62% in September; the purchase index increased 21% for September as a whole. September 2024 funded mortgage volume increased 21% YoY and decreased 3% MoM. The average 30-year conforming retail funded rate in September 2024 was 6.45, 30bps lower than August 2024 and 53bps lower than the same month last year. Purchase rates were 33bps lower MoM and 67bps lower YoY, while Refinance rates were 29bps lower MoM and 48bps lower YoY. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. (Today’s podcast is found here and this week’s is sponsored by LoanCare. The mortgage subservicer is known for delivering superior customer experience through personalization and convenience. LoanCare is part of Fidelity National Financial, a Fortune 500 company and leading provider of services to real estate and mortgage industries. Hear an interview with Figure’s Michael Tannenbaum on how borrowers are paying down debt and the ways in which his company is utilizing OpenAI GPT.)
When it comes to economic data with any real significance, today only offered two reports: PPI and Consumer Sentiment. Neither have an especially stunning pedigree of market movement capability although both have inspired a decent amount of volatility on many occasions. Today is not one of those occasions. Both have come and gone. Bonds remain right in line with opening levels. With that, the week is essentially over and bonds are free to maintain their sideways-to-slightly-weaker drift as traders wait for data that actually makes a case for rates to move back down.
Bonds Turn Green Despite Plenty of Volatility
It was touch and go in the mid-day hours as early stability (modest gains, even) gave way to steady selling. Headlines from Fed's Bostic (he's not sure they'll need to cut again in Nov) caused yields to pop to the highs of the day just before the 30yr bond auction. After a decent auction, bonds calmed right down and slowly inched back into positive territory. That's a pretty decent result considering the 0.3 vs 0.3 core CPI reading this morning and the higher jobless claims number being subject to weather-related doubts.
Econ Data / Events
Jobless Claims
258k vs 230k f'cast, 225k prev
Core CPI M/M
0.3 vs 0.2 f'cast, 0.3 prev
Y/Y Core CPI
3.3 vs 3.2 f'cast, 3.2 prev
Market Movement Recap
09:20 AM Modestly weaker overnight with mixed trading after data. MBS up 2 ticks (.06) and 10yr up 1.1bps at 4.088
11:16 AM Back into weaker territory with MBS down 1 tick (.03) and 10yr up 1.5bps at 4.093
12:50 PM Under pressure on Bostic comments (open to skipping rate cut in Nov). 10yr up 2.1bps at 4.099. MBS down 2 ticks (.06).
03:43 PM Nice recovery after 30yr bond auction. 10yr now down 0.3bps on the day at 4.075 and MBS up 2 ticks (0.06).
Watching Rates
Check our some recent articles and posts about current rates.
While this week's rates were substantially higher than most of last week's, if we remove a few flashes of volatility, the average lender stayed very close to Monday morning's levels. Wednesday afternoon and Thursday mid-day definitely saw multiple negative reprices, but in each case, the bond market recovered enough to limit the volatility. Compared to last week, it may as well have been a flat line. The following chart shows the mortgage backed securities (MBS) prices that directly dictate mortgage rate movement. Higher prices = lower rates and vice versa. Today's economic data included a wholesale inflation report that has occasionally caused some volatility, but today's installment was not one of them. The bond market improved a bit heading into the afternoon and traded calmly from there. As such, mortgage lenders were not compelled to make any negative mid-day changes after setting this morning's rates very close to yesterday's latest levels. The next time lenders have a chance to set mortgage rates for the day will be Tuesday due to the market closure on Monday for Indigenous Peoples' Day.
We can appreciate that the daunting task of determining what "the" actual mortgage rate may be at any given moment. The word "the" is singled out in the previous sentence because there isn't one, perfect, singular, "going rate" for a mortgage. There's a bell curve with most lenders near the center and a few outliers at the margins. The only thing that comes close to being a constant across multiple lenders would be the bond market. Specifically, prices of mortgage-backed securities (MBS) determine the value associated with loans originated by mortgage lenders. Still, there are numerous variables that lenders control that determine what rates they can offer for any given price level of MBS. Looking at an individual rate quote from an individual lender is one way to know something fairly specific about rates, but of course things can still change for a variety of reasons between the initial quote and the closing table. In order to get a general idea of where mortgage rates are, it's common to turn to a rate index. In terms of circulation and historical availability, Freddie Mac's weekly rate index is the only game in town. Unfortunately, in terms of accuracy, on shorter time horizons, it leaves something to be desired--especially for those interested in knowing day to day changes. Freddie's survey is a 5 day average collected from Thursday through Wednesday and then reported the following day. When things are moving quickly, that means several inputs to the equation will no longer be relevant. We've also noticed that Freddie can quite simply undershoot the reality of a big, directional move, like the one we've seen take shape over the past 5 days. There's no telling why this occurs, but it could have something to do with the fact that--even after methodology changes--Freddie's survey still involves human input of rates that aren't necessarily available anymore.
Today brought the release of the minutes from the most recent Fed meeting in addition to numerous Fed speeches and the scheduled auction of 10yr Treasuries. Each of these events has at least some track record of causing volatility for interest rates, but none of them had an impact today. As for the Fed Minutes, it's no surprise to see a lack of response. The minutes are simply a more detailed account of the meeting that took place 3 weeks ago. A lot has happened since then--especially last Friday's jobs report. Speeches by various Fed officials also held few surprises for financial markets. When the shoe had been on the other foot, Fed members commonly reminded the market not to place too much focus on a single month of economic data or a single report. Granted, the single jobs report also provided upward revisions to the previous reports, but even that's not enough to suggest a change in tack from the Fed--especially when Powell was already clear that the initial 0.50% rate cut is no guarantee that subsequent cuts would be the same size. Despite the absence of inspiration, the bond market drifted into slightly weaker territory. That normally connotes higher mortgage rates, but due to the timing of intraday volatility, many lenders are right in line with yesterday's levels. Lenders who offered mid-day improvements yesterday are a bit higher today. Those who held the same rates all day yesterday are actually a hair lower on average.
Mortgage rates spiked at their fastest pace in months on Friday following the jobs report and yesterday added insult to injury, making for a total increase of nearly 3/8ths of a percent (.375%) in the average lender's top tier conventional 30yr fixed rate. Moves of this size are rare, but less so when the market gets a big piece of surprising information after recently hitting a longer term high/low. Those ingredients were in place this time around with prevailing rates close to the lowest levels in well over a year over the past few weeks and a shockingly strong jobs report. The last similar example was in April of this year. Instead of jobs data, it was an inflation report that did the damage back then, but there's still a lesson to be gleaned. Simply put, it wasn't until the market received the next top tier economic report that rates began to move in the other direction. In other words, while the worse may be over in terms of the rapid, upward movement, it will take new data to put compelling downward pressure on rates. Back in April the bond market was a bit more focused on inflation than jobs, but both were considered top tier reports. At present, the market is much more focused on jobs, but inflation data could still have a moderate impact if it comes in far enough from forecasts. The next CPI (consumer price index--the biggest market mover among inflation reports) comes in on Thursday morning.
