Despite all of the economic data and news headlines over the past few days, mortgage rates have barely budged since last Friday. That was not what we expected this week given the anticipation for the inflation reports that came out on Tuesday and Wednesday. Now today, a seemingly balmy Retail Sales report (something that would normally push rates higher) ended up being no big deal for the bond market that underlies mortgage rates.  There’s some rational justification for the paradox, however. After adjusting for inflation, the retail sales categories that speak to discretionary spending suggested an ongoing slowdown (something that would normally be good for rates). The underlying bond market actually improved after this morning’s data, but not enough to cause a big move in mortgage rates. With that, we have yet another day where the average 30yr fixed rate has changed by only 0.01 to 0.02%–about as small as day to day movement gets.   The economic calendar gets less interesting over the next two weeks.  It won’t be until the next jobs report in early August that we get our next major flashpoint–at least in terms of things that adhere to a schedule.  Unexpected headline developments are always a potential source of volatility.

“I forgot to put the seat belt on my five-year-old boy this morning and as we were leaving the trailer park, somebody shouted, ‘You’re an irresponsible father!’ I yelled, “Who the hell said that?! Stop the car, son!’” Lenders know that not all manufactured homes are trailers, and in fact there are some great MHs out there. In a few weeks I head to Michigan for the MMLA conference. It turns out that that over 25 percent of manufactured homes in Michigan are owned by private equity or similar entities per the Private Equity Manufactured Housing Tracker. In 2020 and 2021, they accounted for 23 percent of all manufactured home purchases, up from 13 percent between 2017 and 2019. Housing market trends will be discussed in today’s The Big Picture will start at 11:15AM PT, with Pete Mills from the Mortgage Bankers Association also discussing upcoming policy developments, GSE reform and the MBS guarantee, and what the MBA is watching. (Today’s podcast can be found here and this week’s are sponsored by Ocrolus. Ocrolus is transforming the mortgage industry with AI-powered data and analytics, featuring cutting-edge tools for automated indexing, income analysis, and discrepancy insights that empower underwriters to make timely, confident lending decisions. Hear an interview with Garrett, McAuley & Co.’s Joe Garrett on the future of mortgage commissions, debating whether automation, shrinking margins, and smarter underwriting tools will make 100-basis points payouts a thing of the past.)

There were multiple economic reports on tap this morning (4 of them in the 8:30am slot), but the headliner on a Retail Sales day is almost always going to be Retail Sales! In today’s case, it came out much stronger than expected.  Even when stripping out autos/gas/building materials (i.e. the “control group”), sales rose 0.5% vs a 0.3% forecast. This is the sort of thing that would normally put pressure on bonds, but that’s not the case today.  Why? Revisions are one consideration. Last month was revised down by the same amount that today’s number beat the forecast. Inflation is another consideration.  After adjusting for it, the control group continues to trend lower, not higher. In other words, sales may be increasing in terms of dollars, but people are buying less “stuff.” 
Bonds reacted by trading the headline at first (higher yields), but only briefly.  Traders were all over the “lower inflation-adjusted spending” narrative and quickly traded 10yr yields about 5bps lower from the highs.

A spike in the bank’s noninterest income powered its better-than-expected net income and revenue in the second quarter.

States warn that eliminating the BRIC program could leave rural areas vulnerable to extreme weather.

The Federal Reserve, Federal Deposit Insurance Corp. and Office of the Comptroller of the Currency proposed a rule that would revert the anti-discrimination framework to its 1995 standards.

Supreme Court rulings and provisions in the recently passed budget bill are bolstering the legality of the administration’s effort to fire more than 1,000 employees at the Consumer Financial Protection Bureau.

The VA Home Loan Program Reform Act arrives after the expiration of a previous foreclosure-prevention program sent foreclosure numbers spiking this spring.

Bonds Give Free Preview of Post-Powell Momentum

Everyone loves a good free preview, but not all of the bond market enjoyed today’s version. It involved reports that Trump was considering firing Powell. Forget the nitty gritty details because markets took it very seriously if volume is any indication (highest since tariff announcement week in April). Those who pay close attention were not-at-all-surprised to see longer-term yields RISING in response. After all, a more dovish Fed could only directly control overnight rates.  This is enough to maybe help 2yr Treasuries and under, but from there on up, bonds price in higher inflation and lower global confidence in the dollar and US Treasuries. Trump later said he’s not considering firing Powell, but bonds remained skeptical with 2yr vs 10yr spreads only reversing about half of the mid-day spike.  This shows that traders felt a bit spooked about owning longer term debt in a world where something like this might actually happen, and thus re-allocated toward shorter-term debt for now.  Scary-sounding stuff aside, 10yr yields and MBS both made solid enough gains on the day.  All the drama transpired behind the scenes as far as rates were concerned (apart from a small handful of lenders who repriced for worse before repricing for the better).

Econ Data / Events

Core PPI M/M

0.0 vs 0.2 f’cast
last month revised to 0.4 from 0.1

Core PPI Y/Y

2.6 vs 2.7 f’cast, 3.0 prev

Market Movement Recap

08:32 AM Slightly stronger after PPI.  MBS up 3 ticks (.09) and 10yr down 2.4bps at 4.46

11:42 AM Bonds selling off on headlines regarding Trump considering firing Powell.  MBS now unchanged on the day and 10yr nearly unchanged at 4.48

12:41 PM Headlines retracted, but bonds not retracing the weakness.  10yr still close to unchanged at 4.48.  MBS up 2 ticks (.06) on the day

This morning brought another inflation report. Given the negative reaction to yesterday’s inflation data, there was some cause for concern. Thankfully, today’s data was more unequivocally acceptable for the bond market and–thus–interest rates. Bonds improved fairly well into the late AM hours, but then, the drama! Actually, there wasn’t much drama for mortgage rates, but behind the scenes, lenders came very close to making mid-day adjustments toward higher rates.  Some of them actually did, but most of those lenders later reversed course after the drama faded. So what was it? In a nutshell, Trump discussed firing Fed Chair Powell with some other lawmakers.  Word got out. Markets reacted.  Folks who follow this kind of stuff closely were not surprised to see that neither stocks nor longer term bonds (the stuff that dictates mortgage rates) were happy.  To be clear, 10yr Treasury yields moved HIGHER, not lower, even though the assumption is that Powell’s replacement would be more interested in cutting the Fed Funds Rate. This is just the latest confirmation of something we often repeat: the Fed Funds Rate does not dictate mortgage rates even though the two can generally and broadly correlate over time.  It’s VERY important to note that the broad correlation is due to the fact that mortgage rates and the Fed Funds Rate share common motivations.  If the Fed were to cut rates in a more arbitrary way (one that shows less regard for those motivations), it could actually be bad for longer term rates like mortgages.  And today, it almost was!