Month-End Selling Keeps Rates Range-Bound

You’ve perhaps heard of month-end bond buying?  How about month-end selling?  We had some of the former earlier in the session with a reversal toward weaker levels at the 3pm CME close.  PCE inflation data wasn’t traded this morning.  Early cues came from overseas.  Late cues look more position-driven.  Even before that weakness, bonds rejected another opportunity to move below 3.72%, which increasingly looks like the bottom of the range unless next week’s data is convincingly downbeat.

Econ Data / Events

Core PCE y/y

4.9 vs 4.7 f’cast, 4.7 prev

Core PCE m/m

0.6 vs 0.5 f’cast

Headline PCE m/m

0.3 vs -0.1 f’cast

Chicago PMI

45.7 vs 51.8 f’cast, 52.2 prev

Consumer Sentiment (final)

58.6 vs 59.5 f’cast

Market Movement Recap

08:33 AM British Gilts rallied 20bps overnight, making the 6-8bp gain in US 10yr yields possible.  10s are now down 5.5bps now and MBS are up a quarter point.

11:06 AM 2-way volatility after AM data and now some organic weakness eroding the gains.  10yr down 3.7bps at 3.742.  MBS up 7 ticks (.22). 

01:43 PM More weakness now after UK bonds close for the day, but perhaps not because of it.  Month-end tradeflows look to be hitting as well.  10yr up to 3.766.  MBS down more than a quarter from the highs, but roughly unchanged on the day.

02:52 PM New Highs for 10yr yields ahead of month/quarter-end closing bell at 3pm.  Now roughly unchanged at 3.778.  MBS down 5 ticks (.16) on the day and 3/8ths of a point from the mid-day price plateau.

Today’s calendar may have contained what the Fed refers to as its preferred inflation metric (Core PCE price index), but it was never likely to be a big market mover due to the market’s established pattern of trading inflation surprises immediately after the CPI data (which comes out 2 weeks earlier).  As such, it’s no surprise to see no reaction to PCE this morning.  In fact, bonds are stronger despite PCE suggesting a sell-off.  The only “yeah but” would be that the curve is more inverted (2yr weaker than 10yr) which is, in fact, in line with the PCE result.  Nonetheless, the easiest case to make for market movement guidance would be via the much bigger swings in UK bonds, right at the EU open and then moving back up in the US morning hours.

In the bigger picture, we’re still viewing this week’s volatility as helpful in the bond market’s efforts to find a ceiling for the recent selling spree.  Establishing the bottom of the current trading range is a task best left to data in the week’s ahead.  Specifically next week’s ISM/NFP combo and then CPI the following week.  2.72% remains a bit sticky so far this week (bounces near there on 4 of the 5 days), but momentum metrics would definitively shift if we end the day at current levels. 

If you’ve ever had to hire people, did you sort your applications into three piles: Mad, Hopeless, or Possible? For his Antarctic expeditions, Ernest Shackleton did, and thank you to Fairway Independent’s Guy Schwartz for sending along this article on recruiting. (At least click on the link to look at photos of when men were men, not like we are now when none of us even know how to change our own oil.) In the Antarctic it is springtime, the end of September and end of the 3rd quarter everywhere. In the Northern Hemisphere, places like Minneapolis are losing 3 minutes a day of sunlight. Lenders and vendors are certainly hoping that their company never sunsets…How profitable was your 3rd quarter? LOs and lenders are continuing to face hard times for the foreseeable future as we head into the autumn and winter. Be sure that your financial counterparties, such as warehouse banks, investors, and broker-dealers, are kept up to date on your P&L and plans for profitability going forward. (Today’s podcast is available here and this week’s podcast is sponsored by AIM-Port, an appraisal management platform built to reduce costs and elevate the borrower experience for lenders managing appraisal operations. Go to aim-port.com for more information or click here to reach out to a team member today!) Lender and Broker Products, Services, and Software Broker and Non-Delegated loan originators: amidst changing mortgage landscapes and increasing competition, anything is possible with the right people to support you. With Pennymac TPO, you have a lender you can depend on for the long run. Pennymac’s Broker and Non-Delegated clients rely on their proven experience, led by an executive team with a track record for building scalable and sustainable businesses. Feel at ease working with a public company with financial transparency. Have confidence even after the loan closes with Pennymac’s seamless, uninterrupted servicing experience. Pennymac retains all of their servicing. Their balanced business model makes it possible for them to focus on top-notch customer experience for your borrowers. Sign up to become a partner today with Pennymac TPO, a lender who has the strength and stability to support you and your goals! Interested in working at Pennymac TPO? AEs in the West, contact Eric Yang. In the East, contact Scott Houp.