After starting the holiday-shortened week on a positive note yesterday, bonds are already circling the wagons and encountering some resistance. This doesn’t necessarily kill the notion of a supportive ceiling overhead, but it does confirm the broader, persistent reality: bonds will need a compelling reason for sustained improvement.  This could take the form of exceptional weakness in economic data, surprisingly tame inflation, or the seemingly impossible accomplishment of lowering Treasury issuance via fiscal policy. As for today, bonds are moving to the sidelines ahead of the 5yr Treasury auction.  There also looks to be some front-running of month-end rebalancing with risk parity trading hitting both stocks and bonds at 9:30am.

Overheard in the hallways at last week’s MBA conference: “At my age, instead of a condom I carry a moist towelette in my wallet. At my age, I run into buffalo wings far more often than sex.” There is always news in our biz (like rumors of Guild and Bayview, layoffs at nCino), but the industry, age jokes aside, continues to talk about the topics that were discussed last week. A fair amount of talk suggests that Freddie and Fannie’s influence and market share is waning and moving to non-QM investors with their “can do” attitudes, although both F&F are still relevant. Fannie Mae, for example, will announce a new initiative to combat mortgage fraud in the U.S. housing market this morning. Freddie Mac recently reported that repurchases are steady. It is generally agreed that market conditions are tough, although when surveyed, 18 public builder CEOs maintain an optimistic long-term outlook for the new-home market despite a slower-than-typical spring selling season and muted traffic in the first quarter. (Today’s podcast can be found here and this week’s is sponsored by Calque. Calque provides a binding backup offer on your borrower’s departing residence to clear the existing mortgage balance and closing costs in 48 business hours or less. And it costs less than other buy before you sell solutions. Hear an interview with HomeLight’s Nick Friedman on how lenders are navigating a challenging market shaped by recession fears, rising tariffs, buyer hesitation, and the resurgence of creative tools like buydowns and seller concessions to keep deals moving.)

The transaction is the fourth of its type the company has done this year through the partnership it has had with Crosscountry Mortgage since late 2022.

The company, which already offers services in 41 states, through the Summit Mortgage Training buy gets a foothold in New Jersey and Pennsylvania.

Regulators say the Mississippi-based depository satisfied the terms of the $5 million settlement it reached with Biden administration officials in 2021.

The Federal Reserve and several industry groups agreed to put an indefinite stay on their legal fight over the annual examination process.

The regulator says its prior amicus brief, which cited the Fair Debt Collection Practices Act and sided with borrowers, was no longer valid.

Bonds Finally Seeing Some Support

Whether one wants to give credit to the big rally in Japanese bonds, the weak labor market implications in the Consumer Confidence data, or the simple matter of re-positioning after a 3.5 day weekend, bonds managed to hit their best 3pm close in 2 weeks. Given the heavy, directional selling in May and the 15+bp recovery from last week’s high yields, there’s a temptation to view last week a short-term ceiling until further notice. Wednesday’s 5yr Treasury auction will be informative in that regard, but it’s next week’s data that’s more capable of informing bigger picture momentum shifts.

Econ Data / Events

Durable Goods

-6.3 vs -7.8 f’cast, +7.6 prev

Core Durable Goods

-1.3 vs 0.3 prev

Consumer Confidence

98.0 vs 87.0 f’cast, 85.7 prev

Market Movement Recap

10:59 AM Bonds rally modestly overnight and add to gains early.  MBS up a quarter point and 10yr down 5.2bps at 4.462

12:19 PM Gains continue. MBS up almost 3/8ths and 10yr down 7.8bps at 4.436

03:57 PM Mostly sideways in PM hours.  MBS up 10 ticks (.31) and 10yr down 7.4bps at 4.44

The 30yr fixed mortgage rate index spent 3 consecutive days over 7% last week–the first time that’s happened since February.  Rates have generally been in a more volatile, more elevated range for the past 7 weeks compared to the narrow range seen in March. To put that in perspective, the difference between these two ranges is only 0.125%–not the biggest deal. Another perspective is that any given mortgage borrower may have seen their rate quote jump by 0.50% if they had unlucky timing.  Today’s improvement was partially driven by overnight bond market movement with investors reversing some of the defensive trades seen last Friday.  Later in the morning, the Consumer Confidence Index was stronger than expected, but one of its components raised concern over the labor market. Weaker labor conditions tend to push rates lower, all else equal. The underlying bond market improved after that and several mortgage lenders issued revised rates in response.

Last week’s overseas headlines raised questions about about a spillover from volatility in the Japanese bond market to US yields. At issue: attention-grabbing newswires regarding a surge in long-term Japanese yields. Now today, overnight headlines made for a decisive correction in Japanese yields–one that’s being credited for opening strength in Treasuries. Is it warranted?  Maybe… Whether it is or isn’t, the movement in Treasuries is insignificant  by comparison. Yields continue operating in the same range, although they are now arguably exiting the prevailing uptrend of the past few weeks.

As for the Japan effect, here’s the case being made for today:

That looks pretty compelling, but if we zoom out, we can see the much larger movements in JGBs (Japanese government bonds) having absolutely zero correlation with Treasuries. 

Bottom line: we’d take the Japan effect with a grain of salt–especially on a holiday-shortened week.