The Bank Policy Institute, the American Bankers Association and others said proposed changes would address “some if not all” of banks’ concerns about stress tests, but they are filing the lawsuit to preserve their legal right to do so.

Companies’ new uses for AI, regulators’ responses to past cyber incidents and wider acceptance of digital collateral were among the year’s top developments.

Bonds are selling off for no obvious reasons for however many days in a row it’s been (at least 2 unless you count last Thursday). Episodes like this result in bond analysts dusting off phrases like “the path of least resistance”–typically only ever seen with selling pressure.  This path arguably began in early December after the jobs report failed to push 10yr yields sustainably below 4.17. One could even say it began with the jobs report in early October that singlehandedly obviated any urgency on the part of the Fed to address some sort of troubling slide in the labor market.  At the very least, the most recent leg of weakness can be thought of as the path of least resistance in light of last week’s Fed announcement/dots/press conference. 
The act of pushing the rate cut outlook farther into the future and/or of declaring a higher neutral rate is consistent with “steepening” of the yield curve.  That’s a fancy word that means 10yr yields are moving higher relative to 2yr yields, or that 2yr yields are falling faster than 10yr yields.

Bottom line, there was a chance that a floundering labor market would accelerate the rate cut outlook, sticky inflation be damned.  October’s release of NFP meant that the focus could shift back toward sticky inflation, and subsequent inflation reports confirm there’s no reason to rush additional hikes.  Combine that with some unknown risk that fiscal changes continue to juice the economy and we’re right back to the “higher for longer” mentality that dominated the discourse last year.
Don’t lose hope though.  Things can change, but it will take a noticeable shift in the inflation data, or another troubling swoon in labor metrics.  Either way, the path of least resistance can’t really change until we actually get those reports in the first 2 weeks of January, and even then, it would take a few months in succession to really make a case for a shift. There’s also some hope from the outright level of yields, which began to bring out value buyers the last time 10yr Treasuries moved into the upper 4% range.
(NOTE: MBS Live is on holiday half-day protocol today.  That means this morning’s commentary is also the closing commentary unless something really crazy necessitates additional coverage.  Updates/alerts will only go out in the event of extreme movement. As always, MBS Live members can set up multiple automated alerts (here) if you’re actually making intraday lock decisions today.)

In the news, besides American Airlines grounding all flights (it’s back running now), is Burt, the 90-year-old crocodile from Crocodile Dundee, dying yesterday in Australia. My guess is that he’s long retired from doing much of anything. What do retired mortgage bankers do, besides immediately considering re-entering the business? Here’s one solution from Minnesota. Others travel. Millions sit down in their fancy seats and start flipping through the movies on the screen in front of their nose. Where do they come from? (The movies, not the noses.) Small teams at the airlines make decisions on what gets added to the library. Delta has a team of four that decides what gets onto 165,000 screens on 840 jets, Southwest has a single person picking what makes it onto their media servers, United has a team of eight picking what goes on in the 500 planes where it has seat-back screens. American carries 1,500 titles overall and averages 500 movies and tends to add 200 new titles a month. The best/most popular airline movie (yes, they watch what you watch) is Crazy Rich Asians.  Employment; lender wanted “Evergreen Home Loans® is seeking to acquire a midsized mortgage company that shares our values and commitment to exceptional customer service. With over 37 years of experience, Evergreen is dedicated to helping homeowners achieve their dreams through innovative loan products and a people-first approach. We will take care of your Loan Officers and provide them with the tools to succeed, creating an environment where they can thrive. This acquisition is an opportunity to join forces, combining strengths to achieve lasting success and expand our reach. All inquiries will be handled confidentially. If your company is interested in exploring this opportunity, please contact Evergreen’s founder, Don Burton, directly. (206.300.9965) Let’s build a stronger future together!”

Fifteen percent of residences had three or more structures, which can go undetected by insurers even when they identify a secondary structure.

The Federal Reserve will seek comment on the current stress-testing regime with an eye toward increasing transparency and reducing volatility. Modifications would not go into effect until at least 2026.

The watchdog accuses Rocket Homes and The Mitchell Group brokerage of initiating a plan to generate origination business for Rocket Mortgage.

A Washington, DC tax accountant pleaded guilty for submitting falsified documents in his application for a $1.4 million purchase loan, which he later received.

The scorecard the Federal Housing Finance Agency draws up yearly applies to two influential loan buyers and an entity overseeing the fungibility of their bonds.

Steady Selling in Bonds. ‘Tis The Season?

Bonds began the day in weaker territory and continued to sell off through 2pm ET despite an absence of any obvious justifications.  That said, ’tis the season for bonds to move whichever way they want without any obvious justifications.  Volumes were as low as you’d expect for X-mas week, if not slightly lower. Treasuries are in a cautious stance, having been tasked with underwriting several huge shorter term auctions on X-mas week, and less than one week after a big dust-up with the Fed.  It’s basically the bond market version of “sell in May and go away,” except May is December. 

Market Movement Recap

08:39 AM modestly weaker overnight, mostly after Europe opened.  MBS down 2 ticks (.06) and 10yr up 3.5bps at 4.549

10:16 AM Weaker over the past 45 minutes.  MBS down 7 ticks (.22) and 10yr up 5bps at 4.564

03:03 PM Weakest levels of the day with MBS down 10 ticks (.31) and 10yr yield up 7.7bps at 4.592