Bonds End Unchanged After Another Quiet Session
This is essentially placeholder commentary to serve as Friday's recap even though no commentary is needed this week. Bonds saw some incidental strength in the AM and weakness heading into the PM. The net effect was unchanged trading levels by the 3pm CME close.
Market Movement Recap
10:31 AM modestly stronger overnight and sideways so far. MBS up 3 ticks (.09) and 10yr down 1.2bps at 4.12
12:27 PM Off the best levels. MBS now unchanged and 10yr up 1bps at 4.142
02:31 PM Holding sideways with no additional weakness. MBS unchanged and 10yr up less than 1bp at 4.138
Because mortgage rates are determined by the bond market, a boring market day typically translates to a boring mortgage rate day. But that's not entirely true today. While the level of movement is indeed very small, it only took a small movement to get the average 30yr fixed rate down to their lowest levels since the end of October. Next week should be another slow one for rates, but things should pick up progressively as 2026 gets underway.
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Although the bond market is technically open today, it might as well not be. Late year holidays (Thanksgiving, X-mas, New Year) depress volume and liquidity more than any others. Today is neither an official holiday nor an early close day, but considering Christmas fell on a Thursday and the federal employee holiday, trading is just as sparse as it was on Christmas Eve. Algorithmic trading programs are doing the vast majority of market making (i.e. determining prevailing levels for buyers and sellers). Bonds will remain sideways in a very narrow range until non-algo trades force a modest move higher or lower. At that point, yields can make a short run in the direction implied by those trades before leveling off in a sideways pattern to wait for the next legit input. If you prefer, you can disregard all of the above and simply understand that the next "real" trading in the bond market won't happen until the week of January 5th.
Decent Gains With Some Help From 7yr Auction
You know it's a holiday with an early closure if we're talking about a 7yr Treasury auction having an impact on the bond market. To be fair, 7s have had an impact once or twice in the past, but the bar is certainly high. The holiday calendar makes the bar a bit lower as fewer determined traders are required to move the whole pile. Such was the case after the 11:30am ET auction. Bonds were already in good shape before that, but the earlier gains were more incidental than data-driven.
Econ Data / Events
Continued Claims (Dec)/13
1,923K vs -- f'cast, 1897K prev
Jobless Claims (Dec)/20
214K vs 223K f'cast, 224K prev
Market Movement Recap
08:31 AM Unchanged overnight and no reaction to claims data. MBS unchanged and 10yr down 1/10th of a bp at 4.165
Watching Rates
Check our some recent articles and posts about current rates.
Because mortgage rates are determined by the bond market, a boring market day typically translates to a boring mortgage rate day. But that's not entirely true today. While the level of movement is indeed very small, it only took a small movement to get the average 30yr fixed rate down to their lowest levels since the end of October. Next week should be another slow one for rates, but things should pick up progressively as 2026 gets underway.
It was a short day for the bond market that underlies mortgage rates, but a good one. A side effect of holiday weeks and early market closures is a bit of random volatility without any obvious justification. When volume and participation are low, bonds can move a bit more than they otherwise might. All that to say today's improvement was luck of the draw, but we won't object to the result. The average top tier 30yr fixed rate fell to the lowest level since November 25th. The caveat is that the range has been fairly narrow during that time. [thirtyyearmortgagerates]
Mortgage rates have broadly been in a narrow holding pattern for the past 4 months and an even narrower range during December. Today will do nothing to change that with the average lender ending the day exactly where they left of yesterday. Earlier today, however, the average lender was offering slightly higher higher rates. The upward pressure came courtesy of the bond market's reaction to stronger GDP numbers for Q3. But that initial reaction proved to be a temporary overreaction, exacerbated by lighter trading participation associated with the holiday week. In general, lower participation greases the skids for volatility, essentially magnifying the impact of events that might not have much of an impact otherwise. The bond market is technically open tomorrow (and thus, lenders will publish mortgage rates), but it should be even more heavily affected by holiday trading vibes. Also, there isn't much in terms of important econ data to cause the kind of volatility seen today--no to mention the fact that today's volatility ultimately proved to be non-existent.
Mortgage rates are tied to movement in the bond market and bonds were close enough to Friday's levels that mortgage rates were essentially unchanged today. This keeps the average lender in the lower portion of the narrow range seen over the past 4 months. If rates manage to move noticeably lower from here, they'll be challenging the lowest levels in more than 3 years. Meaningful momentum may be hard to come by over the next 2 weeks. During that time, the bond market will be fully closed for 2 days, partially closed on 2 days, and much lighter in volume and participation for the rest of the time. This can lead to random, small-scale volatility but it rarely results in lasting momentum. For that, we'll be waiting until the major econ data begins coming out in January--most notably the Jan 9th jobs report.
