Weaker Thanks to 2 Kinds of “Supply”

At its core, the bond market is like any other financial market, and securities are like almost any other commodity/good/service when it comes to the laws of supply and demand. That means we can reconcile today’s weakness in bonds by talking about factors that may have decreased demand or increased supply. The latter is the easier discussion today. We’re in the middle of this week’s Treasury auction cycle, and although that supply is well known ahead of time, it can nonetheless tap the breaks on demand from certain buyers who will wait to buy until the auction or afterward. The other supply was not well known ahead of time.  It came in the form of a $15bln this primer). 

Econ Data / Events

New Home Sales (Aug)

0.8M vs 0.65M f’cast, 0.652M prev

Market Movement Recap

10:31 AM Moderately weaker overnight and holding mostly sideways. MBS down an eighth and 10yr up 2.6bps at 4.129

12:48 PM Little-changed near weaker levels.  MBS down 5 ticks (.16) and 10yr up 3.5bps at 4.138

01:16 PM No major reaction to 5yr auction.  MBS down an eighth and 10yr up 3.7bps at 4.14

Over time, mortgage rate movement lines up almost perfectly with movement in the underlying bond market, but there can be day to day discrepancies depending on the timing of market volatility. Think of mortgage rates like a restaurant that adjusts menu prices daily depending on the price of ingredients. Sometimes, ingredient prices will change significantly and early in the day, thus prompting the restaurant to adjust menu prices in the middle of the day.  Other times, the ingredient prices may not change by enough or may happen too late in the day to prompt any change from the restaurant.  These eventualities speak to the past 2 days for mortgage rates. Specifically, bonds improved yesterday afternoon, which would eventually push mortgage rates lower.  But it was too late in the day for most lenders to change their mortgage rates.  Now today, bonds moved back to the weaker levels from yesterday morning. So the bond market is weaker, which would indicate higher rates, but because mortgage rates didn’t adapt to yesterday afternoon’s changes, lenders weren’t compelled to raise rates compared to yesterday morning’s levels.

“Yesterday I was devastated to learn that the 2025 Psychic Prediction Convention was cancelled due to unforeseen circumstances.” Yesterday, while the stock price of Better (BETR) zoomed to the moon (who saw that coming?), the audience at the Loan Vision Innovation event heard from the MBA’s VP Marina Walsh who, speaking for the MBA’s economics team and looking into the future, is seeing signs of a slowdown. “We haven’t felt the full impact of the tariffs yet. Job growth is slowing, and job search times have increased.” The MBA believes that we’ll see 2-3 fed funds cuts coming up, but expect minimal impact on mortgage rates and 10-year Treasury yields. So don’t expect 30-year rates to drop below 6 percent. But “flash” refi opportunities will continue to appear, with some companies better at acting quickly than others. Meanwhile, Fannie Mae believes that mortgage rates will end 2025 and 2026 at 6.4 percent and 5.9 percent, respectively, according to the September 2025 Economic and Housing Outlook. (Today’s podcast can be found here and this week’s podcasts are sponsored by BeSmartee, the most innovative mortgage technology platform for banks, credit unions, and non-bank mortgage lenders. Hear an interview with FutureWave Finance’s Steve Thomas on the capital markets landscape, focusing on mortgage rate dynamics, policy transmission, shifting market share between CFIs and non-banks, and the impact of demographic trends amid a pause in product innovation.) Services, Products, Software, and Tools for Lenders and Brokers

It would be an overstatement to say that this week’s econ calendar has been “active,” but yesterday at least had unscripted comments from Fed Chair Powell, several other Fed speakers, and an occasionally important S&P PMI report. In contrast, today’s only monthly econ report is New Home Sales which is almost always a non-event for bonds and today is proving to be no exception. This leaves only the 5yr Treasury auction to inspire intraday movement–at least in terms of scheduled events. Incidentally, concessionary pre-auction selling (or, rather, buyers waiting until 1pm) could also be driving some of today’s moderate weakness, but a majority of the selling lines up with a big bond announcement from Oracle at 8am ET. 

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Modestly Stronger After No Whammies From Powell

Last week’s press conference with Fed Chair Powell could be summed up as “more hawkish than the market expected.” After being compounded by strong econ data on Thursday morning, the selling spree ran its course and we’ve been mostly sideways over the past 3 days. Today ended up being the best version of sideways with yields almost making it back to Thursday’s closing levels. Most of the move happened after Powell finished a Q&A this afternoon. This suggests traders were relieved that he didn’t reinforce the hawkish talking points from last week. All told, it wasn’t a big move, but it was a friendly one nonetheless.

Econ Data / Events

S&P Global Composite PMI (Sep)

53.6 vs 54.6 f’cast, 55.1 prev

S&P Global Manuf. PMI (Sep)

52 vs 52 f’cast, 53.0 prev

S&P Global Services PMI (Sep)

53.9 vs 54 f’cast, 54.5 prev

Market Movement Recap

09:56 AM Modestly stronger overnight. No major reaction to PMI data.  MBS up 2 ticks (.06) and 10yr down 1.2 bps at 4.138

12:53 PM MBS unchanged and 10yr down 1.2bps at 4.137

01:47 PM Making some gains after Powell Q&A.  MBS up an eighth of a point and 10yr down 3.6bps at 4.112

03:52 PM heading out near best levels.  MBS up 5 ticks (.16) and 10yr down 4bps at 4.109