Orderly Move to Highest Yields in 8 Months

Bonds reacted logically to this morning’s econ data at 10am.  ISM Services’ inflation component was one of the worst offenders, but higher job openings didn’t help.  The spike in yields was instantaneous but fairly well contained.  Bonds managed to drift sideways for the entire session after that with no discernible reaction to the 10yr Treasury auction (not a surprise considering it was very close to expected levels).  All told, yields inched up to the highest since April 2024, but in a very orderly way. 

Econ Data / Events

Job Openings

8.098m vs 7.7m f’cast, 7.839m f’cast

ISM Services

54.1 vs 53.3 f’cast, 52.1 prev

ISM Services Prices

64.4 vs 57.5 f’cast, 58.2 prev

Market Movement Recap

10:17 AM Just slightly weaker overnight with additional selling after ISM data.  MBS down 6 ticks (.19) and 10yr up 4.6bps at 4.678

01:04 PM No major reaction to ho-hum Treasury auction.  10yr up 4.3bps at 4.676 and MBS down just over an eighth.

04:11 PM Sideways since 10am, essentially, with MBS down 6 ticks (.19) and 10yr up 5.9bps at 4.691

We came into the current week knowing that rates would take cues from any clear cues in this week’s economic data.  In general, that means higher rates in response to stronger data or lower rates if the data is weaker.   Today’s data was stronger across the board. One of the most closely watched economic reports that most people have never heard of–ISM’s Service sector index–was only a bit higher than markets expected, but the report includes separate components for things like employment and prices.  Today’s release showed a sharp increase in prices and that’s a particularly sensitive subject for rates these days. At the same time, the US government released job openings numbers which showed an unexpected uptick back to the highest levels in 6 months.  Higher jobs openings tend to coincide with higher rates. Incidentally, mortgage rates also matched their highest levels in 6 months today, last seen on December 19th and July 1st. On the plus side, this didn’t represent a huge move from yesterday’s latest levels with the average lender only increasing 30yr fixed rates by 0.04%.

High hopes and crossed fingers may help one’s outlook in advance of key economic data, but they are powerless once the data comes out.  In today’s case, the Job Openings data coincided with ISM Services at 10am to deliver a one-two punch to bond bulls.  Both were stronger than expected.  ISM was especially troubling. It is the heavier hitter of those two reports and several of the internal components added insult to injury (e.g. “prices” component at 64.4 vs 58.2 last time, not boding well for inflation next week).  Bonds saw the writing on the wall instantly.  Yields are now up to the highest levels since April 2024.

“We all get the same 365 days. The only difference is what we do with them.” In 2024 a lot of lenders buckled down every day. Time to take a breather? Maybe not: mortgage bankers still face pressure on profit margins. In today’s Advisory Angle at 11AM PT, powered by the Chrisman Commentary, STRATMOR Senior Partner Garth Graham, Principal Advisor David Hrobon, and Senior Advisor Rob Chrisman discuss managing margin compression, including cost management techniques, improving operational efficiency, and optimizing loan product offerings. In a sense, homeowners have “profit margins” in terms of what makes sense to do ahead of a sale. Pass this along to your real estate agent clients interested in improving curb appeal: A new garage door cost on average $4,513 in 2024, but added $8,751 to the resale value of the home, a 194 percent cost recoupment and one of the best things one can do to juice the sale price. Other clever and cost-effective renovations include replacing an entry door (adds $4,430 to resale value at a cost of $2,355), dabbling in landscape maintenance or lawn care, or refinishing hardwood floors. Some renovations are bad bets: remodeling a kitchen might cost $158,530 but only add $60,176 to resale value, recouping just 38 percent of the cost. (Today’s podcast can be found here and this week’s is sponsored by CoreLogic. CoreLogic gives mortgage professionals the tools they need to establish long-term relationships with their clients, helping them keep future business in-house and transforming the way they do business. Today’s has an interview with Bank of Oklahoma’s Chris Maloney on MBS issuance, the money supply, neutral interest rate, and his predictions for future Fed moves.)

The leading homebuilder trade group was joined by a consortium of state attorneys’ general in the filing, alleging higher costs to both its members and potential buyers of new units.

Analysts agree recent changes to government agreements will end the Fannie Mae and Freddie Mac conservatorships, but it’ll likely happen later rather than sooner.

The manufactured home loan lender, a unit of Berkshire Hathaway subsidiary Clayton Homes, was accused of ignoring red flags that sent many borrowers into bankruptcy, default and ultimately out of their homes.

Florida-based Amerant Bancorp recently restructured its securities portfolio after selling its Houston branches.

In his letter of resignation, Federal Reserve Vice Chair for Supervision Michael Barr said an attempt by the Trump White House to remove him could create a “distraction” for the Fed. He plans to retain his seat on the Board of Governors, which expires in 2032.

Small Scale Volatility as Bonds Wait For Jobs Report

Bonds lost ground this morning despite a weaker S&P PMI headline.  While there were some mitigating factors beyond the headline, we could just as easily conclude that traders are erring on the side of caution heading into a week of Treasury auction supply with another big jobs report on Friday–all while being forced to wait an unknown amount of time to find out where the rubber meets the road on fiscal policies that could further affect the outlook for the economy, inflation, and Treasury issuance.  All told, today’s volatility was mild at best and we didn’t learn anything new about the bigger picture.

Econ Data / Events

S&P Services PMI

56.8 vs 58.5 f’cast

Market Movement Recap

09:47 AM Slightly stronger overnight but backtracking in first 2 hours.  MBS down 2 ticks (.06) and 10yr up 2.4bps at 4.622

10:37 AM Weakest levels.  MBS down more than a quarter from highs and 5 ticks (.16) on the day.  10yr up 3.8bps at 4.636

02:04 PM modest recovery into the noon hour, but falling a bit since then.  MBS down 2 ticks (.06) and  10yr up 2.9bps at 4.627

04:11 PM Calming down in after hours trading.  MBS down only 1 tick (.03) and 10yr yields up 1.2bps at 4.61.