The bond market and interest rates have arrived at the first full week of the new year almost exactly where they left off before the X-mas/New Year holiday weeks.  There was a small amount of underlying volatility in bonds today, but not enough to translate into volatility for mortgage rates.  This kept the average lender near 7.125% for a top tier conventional 30yr fixed rate. Although the past 2 weeks have been uneventful for rates, the next 2 weeks will be heavily influenced by incoming economic data.  There are several honorable mentions over the next few days before getting to this week’s headliner on Friday: the jobs report.  The data between now and Friday is certainly capable of causing movement in either direction, but the jobs report is capable of causing much MORE movement.  In all cases, bigger volatility requires a bigger deviation from the market’s expectations. Where do expectations come from? Hundreds of economists/analysts submit or publish forecasts for most of the regularly-scheduled economic data.  The median of those forecasts is then published as a consensus–effectively THE forecast.  In general, if the data suggests the economy is weaker or inflation is lower versus the forecast, it’s good for rates.  

It is right around now that people give up saying “Happy New Year” to others, mostly because they’ve lost track to whom they’ve said it. Welcome back to a 5-day workweek, despite storm severity increasing, the first since mid-December. Oh, and happy 45²! Yes, 2025 = 45² is a “perfect square” year, and is represented by the square of the sum of all the digits: (0 + 1 + 2 + 3 + 4 + 5 + 6 + 7 + 8 + 9)² = 2025. It also represents the sum of the cubes of all the digits: 0³ + 1³ + 2³ + 3³ + 4³ + 5³ + 6³ + 7³ + 8³ + 9³ = 2025. Continuing on in the “fun with numbers” vein, be careful who you focus on in the real estate agent world. Now that 2024 is over with, a good question is “How many deals did you close last year?” If you ask, “How was 2024?” you might hear “Fine” with the agent closed no deals. If you go back to 2023, nearly half of real estate agents sold 0-1 house! We’re still waiting on the 2024 stats, but it doesn’t make a lot of sense to spend time catering to an agent that isn’t doing any business. (Today’s podcast can be found here and this week’s is sponsored by CoreLogic. CoreLogic is giving 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 Freedom Mortgage’s Stan Middleman on his multi-decade career in the mortgage industry and how to maintain success regardless of market conditions.) Correspondent and Wholesale Non-Agency Products

Treasuries made modest gains in overseas trading, but yields are heading higher during domestic hours.  There are two things working against us this morning.  The first is more of a general backdrop created by Treasury auction supply. It’s rare to see bonds take a bullish lead-off ahead of an auction cycle these days.  If anything, it’s more common to see more selling at first and then some relief after the Wednesday or Thursday auction. The second headwind is the absence of “help” from this morning’s econ data.  The “miss” in the S&P Services PMI is a bit misleading.  In addition to being a small miss, it left PMI at the highest levels since early 2022. The business confidence component is at an 18 month high and the employment component rose for the first time in 5 months.  In that light, it’s no surprise to see bonds shy away from a favorable reaction. 

A year that saw businesses express growing interest in the segment ended with a more subdued outlook due to interest rate trends, according to a new report.

The meals, which were more promotional than sales-oriented, shouldn’t make originators exempt from receiving overtime pay, an attorney argued.

The share of waivers submitted with purchase mortgages sold to the government-sponsored enterprises accelerated just prior to a change that will make more loans eligible.

Freddie Mac shares rose to $4.14 at 12:30 p.m. in New York Friday, Fannie Mae’s stock climbed to about $4.23, each up 22% from the previous day’s close.

Keefe, Bruyette & Woods expects a better year for originations than either Fannie Mae or the Mortgage Bankers Association, although volume will remain below the norm.

Holidays Came and Went Without any Bond Market Fanfare

2 weeks ago today, we assumed the bond market would leave the office for the holidays and reassess during the first full week of 2025.  For the most part, that’s how things went down.  10yr yields could have ended the week anywhere between 4.5 and 4.6 depending on this morning’s data.  The higher levels got the nod due to slightly stronger ISM reading. The end. Bigger movement was always most likely to be on hold until and unless the early January data makes a strong, unified case for or against the economy. The early January data in question starts to roll in throughout the week, but as always, the biggest ticket is Friday’s jobs report.

Econ Data / Events

ISM Manufacturing

49.3 vs 48.4 f’cast, 48.4 prev

ISM Prices

52.5 vs 51.7 f’cast, 48.4 prev

Market Movement Recap

09:29 AM Sideways to slightly stronger overnight, but giving up some gains early.  MBS up 1 tick (.03) and 10yr down 0.2bps at 4.561

10:07 AM Slightly weaker after ISM data.  MBS down 1 tick (.03) and 10yr up 1bp at 4.572

02:25 PM treading water at weakest levels.  MBS down 3 ticks (.09) and 10yr up 2.3bps at 4.587

The official holiday dates may be in the rearview, but as far as interest rates and underlying bond markets are concerned, this was the last day of the winter holiday season.  The same logic would put the start of the holiday season at December 23rd–a day where the average top tier 30yr fixed rate was exactly the same as it was today. Today’s rates had a chance to end up slightly lower, but the bond market responded to a decent showing in this morning’s only major economic report.  The ISM Manufacturing Index (one of many monthly economic reports that can influence day-to-day rate momentum) didn’t suggest any major surge in activity, but it did come in slightly stronger than the market expected. The reaction was logically mild, sending the average 30yr rate up by 0.03%. The stakes increase next week as market activity traditionally increases quickly on the first full week of the year.  We’ll also get several other economic reports including Friday’s big jobs report–consistently in a class by itself when it comes to its power to influence interest rates.