Data Helped, But Wild Cards Remain on Deck
This morning's economic data wasn't immediately and obviously worthy of credit for the bond rally that followed, largely because the bond rally that followed was fairly small. Most of the day's gains were in place beforehand. The data (lower ISM/employment, job openings, and job quits) helped keep bonds near the stronger end of the day's range, and thus, the stronger end of the 5 week range. There's more data on Wednesday, but the biggest wild card may be the long-awaited tariff announcement in the afternoon.
Econ Data / Events
ISM Manufacturing
49.0 vs 49.5 f'cast, 50.3 prev
Prices 69.4 vs 65.0 f'cast
Employment 44.7 vs 47.6 prev
Job openings (lower = better for rates)
7.568m vs 7.630m f'cast
Job Quits (lower = better for rates)
3.195m vs 3.266m prev
Market Movement Recap
10:05 AM Stronger overnight and at best levels after 10am data. MBS up 6 ticks (.19) and 10yr down 5.1bps at 4.154
12:55 PM Sideways and slightly choppy all morning. MBS still up 6 ticks (.19) and 10yr down 4.6bps at 4.161
04:07 PM Still flat. MBS up 6 ticks (.19) and 10yr down 4.1bps at 4.165.
While interest rates continue operating in a range that is generally flat and narrow over the past 5 weeks, it's also true that today's rates are on the lower edge of that range. Because there's not much of a gap between the highs and the lows, it didn't take a major move to facilitate today's little victory, but it is notable that we've seen 3 victories in a row now. In other words, rates have fallen by a modest amount on each of the past 3 business days. To reemphasize the narrowness of the range, we were at the highest levels 4 days ago. Today's victory wasn't necessarily a given. It relied on the bond market's reaction to today's economic data. Bonds drive rates, and econ data can be a key motivation for bonds. Weaker data tends to help bonds improve, thus pushing rates lower. Several of this morning's economic reports were slightly weaker than expected. In and of themselves, they may not have helped rates, but with the unified message of economic uncertainty, it was enough to usher rates toward the lower range boundary.
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There have certainly been days where the "prices paid" component of the ISM Manufacturing data has been responsible for sending bond yields higher. Today is not one of them, even though prices surged to the 2nd consecutive multi-year high.
This likely would not be the case if it was the only data in play, but thankfully for bonds, the rest of the 10am data was friendly. Even in the same report, the employment metric fell several points and is close to longer-term lows.
In addition, job openings and job quits both moved lower (both good for bonds).
Month End Buying Pushes Back on Mid-Day Weakness
Bonds began the day in stronger territory as investors reacted to weekend tariff news with a risk-off move. Stocks bounced shortly after the NYSE open and bond yields were pulled higher in concert. That prevailing correlation broke down around 3pm due to month/quarter end bond buying (3pm is the official close for bonds, even though trading continues until 5pm). There was no major reaction to econ data or Fed speakers today. The data becomes more relevant in the coming days.
Econ Data / Events
Chicago PMI
47.6 vs 45.2 f'cast, 45.5 prev
Market Movement Recap
09:54 AM Stronger overnight as stocks continue tanking. MBS up 3 ticks (.09) and 10yr down 2.7bps at 4.208
11:30 AM Weakest levels of the day. MBS nearly unchanged and 10yr still down 1.3bps at 4.223
03:10 PM Some month/quarter end buying at 3pm helping a modest recovery. 10yr down 0.3bps at 4.232. MBS unchanged.
Watching Rates
Check our some recent articles and posts about current rates.
While interest rates continue operating in a range that is generally flat and narrow over the past 5 weeks, it's also true that today's rates are on the lower edge of that range. Because there's not much of a gap between the highs and the lows, it didn't take a major move to facilitate today's little victory, but it is notable that we've seen 3 victories in a row now. In other words, rates have fallen by a modest amount on each of the past 3 business days. To reemphasize the narrowness of the range, we were at the highest levels 4 days ago. Today's victory wasn't necessarily a given. It relied on the bond market's reaction to today's economic data. Bonds drive rates, and econ data can be a key motivation for bonds. Weaker data tends to help bonds improve, thus pushing rates lower. Several of this morning's economic reports were slightly weaker than expected. In and of themselves, they may not have helped rates, but with the unified message of economic uncertainty, it was enough to usher rates toward the lower range boundary.
"Sideways" has been the dominant theme for mortgage rates for well over a month now. The average top tier 30yr fixed rate fell below 6.82% on February 25th, and moved down to 6.70% the following week. We haven't been outside of that range since then. Today was just another day in that regard, or perhaps even a prime example considering it was smack dab in the middle of that range. While it's not always apparent by the time mortgage lenders set rates for the day, the underlying bond market continues experiencing volatility behind the scenes. Recently, that volatility often aligns with the stock market as investors react to the economic implications of fiscal policies. This could cause more movement on Wednesday when tariff details are expected to come out. In addition, this week's economic data is more than capable of moving the needle--especially Friday's jobs report. As always, there's no way to know which direction rates will move in response to key events. If there were, investors would move in that direction before the event, thus taking the probability back to 50% for either outcome.
First thing's first before anyone gets too excited: yes, rates fell on Friday, but not significantly. The average lender is still a bit closer to the higher end of the recent range. In addition, the recent range is quite narrow with average top tier 30yr fixed rates never straying too far from 6.75 since late February. What made today interesting was the fact that rates moved lower at all. As we often discuss, rates take lots of guidance from key economic reports such as this morning's PCE price index (a key inflation report). PCE arguably had more potential than any other economic data this week to cause a reaction in rates. Conventional wisdom is clear on the reaction function: If inflation comes in higher than expected, rates are more likely to move up, all other things being equal. In today's case, rates dropped even though inflation rose. What's up with that? One mitigating factor is the fact that the unrounded PCE numbers were much closer to what the market was expecting. In other words, inflation looked like it rose more than it actually did due to the custom of rounding the numbers to the nearest tenth of a percent. Beyond that, it's also plain to see that the stock market fell significantly today--something that's recently been very likely to correlate with interest rates moving lower. Last but not least, there are some advanced considerations that have to do with month and quarter end trading practices. A detailed explanation is beyond the scope of our coverage, but the gist is that month/quarter end can create rate movement in either direction without any motivation from economic data. With Monday being the last day of the month/quarter, we're certainly seeing some influence from this type of trading.
With the exception of Monday, which saw a medium-sized uptick in mortgage rates, the rest of the week has been fairly calm in terms of volatility. Unfortunately, the low-volatility movement has been exclusively higher in rate and it's starting to add up. In fact, as of today, the top tier conventional 30yr fixed rate is at the highest level in just over a month. There was nothing special about today that led to that reality. It was just another day with minimal rate movement. When considering something like "the highest rates in a month," low volatility is the silver lining. It means that there's really not much of a difference between the best and worst rate offerings of the past few weeks. A longer term chart makes it fairly easy to see what sharper movement would look like. It also highlights the narrowness of the recent range compared to the range over the past 7 months. [thirtyyearmortgagerates]
