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.

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). 

This ain’t no April Fools economic news: not only has Hooters declared bankruptcy, but apparently there is yet another push to have credit unions pay income taxes. “Right now, leaders in Congress are discussing how to fund an extension of the Tax Cuts and Jobs Act (TCJA). Some lawmakers are considering a new tax on all credit unions as part of the solution. Credit unions have been tax-exempt since the 1934 Federal Credit Union Act, and will tell you that, “This exemption allows us to return value directly to you through better rates, lower fees, and member-focused service, not to shareholders through increasing stock prices or dividends. A tax on credit unions would put these benefits at risk.” Meanwhile, in IMB Land, in the span of just three weeks Rocket Cos. has thrown around more than $11 billion to buy a world where Americans buy, sell, and finance their homes through… Rocket. Today’s Advisory Angle webcast by the STRATMOR Group focuses on the what every lender should be thinking about given Rocket’s recent corporate moves and how deals are structured. It’s at 2PM ET, 11AM PT. (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. Today’s features an interview with Cotality’s (formerly CoreLogic’s) George Gallagher on the latest takeaways from the LA fires as it pertains to housing and insurance, as well as his company’s recent rebrand.)

This transaction, following Rocket’s purchase of Redfin, could be the start of the creation of large players to compete with the likes of Zillow.

The Trump administration continues to battle the Consumer Financial Protection Bureau’s union by seeking a stay of a preliminary injunction that reinstated the CFPB’s workforce and contracts and preserved its data.

Former Capital One Multifamily executive Grace Huebscher departed recently and the Federal Housing Finance Agency appointed a successor amid broader reform.

Slow repair cycle times, widespread premium increases and the volume of catastrophic events all contribute to dissatisfaction, according to the U.S. Property Claims Satisfaction Study from J.D. Power.

The deal was highly vetted with regulators following the publicly traded company’s failure to obtain approval in a past agreement, an executive said.

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. 

“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.