Big, Early Rally, Then Flat All Day

On any given day in the bond market, Sometimes everything that’s going to happen ends up happening in the morning, thus leaving the rest of the day to drift almost perfectly sideways. Thursday was one of those days. Overseas markets dogpiled on Wednesday afternoon’s tariff reaction, sending stocks ripping lower and bond yields following. By the time US markets began active trading, most of the gains were in for bonds.  MBS, specifically, barely budged from 11:40am through the close.

Econ Data / Events

Jobless Claims

219k vs 225k f’cast, 225k prev

Continued Claims

1.903m vs 1.860m f’cast, 1.847m prev

ISM Services

50.8 vs 53.0 f’cast, 53.5 prev

ISM Employment

46.2 vs 53.9 prev

ISM Prices

60.9 vs 62.6 prev

Market Movement Recap

08:35 AM Stronger overnight as tariff rally extends.  MBS up a quarter point and 10yr down 8bps at 4.044

01:01 PM Sideways near highs.  MBS up 9 ticks (.28) and 01yr down 7.5bps at 4.048

04:17 PM Still sideways!  MBS up 10 ticks (.31) and 10yr down 8.3bps at 4.041

While plenty of uncertainty remains over the finer points of Wednesday afternoon’s tariff announcement, markets have heard enough to brace for impact on global trade. That “bracing” is being traded in the form of a flight to safety (sell stocks, buy bonds) that began yesterday and continued overnight. 10yr yields were already close to 4.0% before this morning’s weaker ISM Services data, and have been inching closer since then. 
That said, the additional “inching” isn’t really in response to ISM. Almost all of today’s trading looks like an afterthought compared to yesterday’s initial tariff reaction and the early overnight trading. 

The housing regulator has been mum on details about its reshuffling, but Secretary Scott Turner has emphasized mission-critical functions would persist.

Some members of the Senate, where the GOP majority is thinner, also are asking the Federal Housing Finance Agency to reveal more about planned mortgage reforms.

Steel, aluminum, and automobiles already subject to Trump’s duties will not face reciprocal tariffs. Lumber products expected to soon be hit with a tariff investigation will also be exempt.

Publicly traded lenders, including UWM, Rocket Mortgage and Guild Mortgage, saw personnel expenses increase significantly throughout last year.

Regulators should approve the deal because post-merger, the servicing market remains fragmented and the mortgage origination business is even more dispersed.

Late Day Volatility on Tariff Speech

The long-awaited tariff speech took markets for a ride in both directions this afternoon. After the dust settled, the net effect was “buy bonds, sell stocks.” Notably, that was a sharp departure from the initial net effect during the early part of Trump’s speech. The ultimately friendly result was enough to get Treasuries back into positive territory and for MBS to get sorta close.  In the bigger picture, the volatility didn’t really matter as both stocks and bonds remained in the same old ranges. 

Econ Data / Events

ADP Employment

155k vs 105k f’cast, 77k prev

Market Movement Recap

08:23 AM Stronger overnight and no major reaction to ADP data.  MBS up an eighth of a point and 10yr down 3.6bps at 4.127

11:50 AM Losing ground as stocks rally.  10yr up 1.7bps at 4.179 and MBS unchanged.

12:29 PM More weakness.  MBS down an eighth of a point now and 10yr up 4.8 bps at 4.21

04:19 PM 10yr yields are up 6.7bps at 4.23 and MBS are down 6 ticks (.19) on the day and more than a quarter point from rate sheet print times.

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This morning’s ADP Employment data was the only potential market mover for bonds, at least as far as scheduled data is concerned.  Despite coming out a bit higher than expected, bonds opted to maintain the rally trend that had been intact since the start of European trading overnight. That resulted in moderate gains at the start of the 9:30am NYSE open, but things changed from there.  Stocks bounced higher and brough bond yields along for the ride.  The net effect is modest weakness, and no major change to the sideways grind in the bigger picture.  Things could change for better or worse this afternoon after the tariff announcement expected at 4pm ET.