A “No Reaction” Sort of Day

Granted, there were no big ticket economic reports on tap for Monday, but there were several events that had at least some small chance to inspire some momentum. These included the 2 and 5 year Treasury auctions (both earlier in the week than normal due to month-end falling on a Thursday) and Treasury borrowing estimates for fiscal Q4 (Jul-Sep). The latter is part 1 of 2.  The 2nd part arrives on Wednesday afternoon with the full breakdown of new auction amounts. Today’s release provided an updated total amount.  After filtering out the noise, and giving credit for undershooting borrowing needs last quarter, borrowing estimates only increased $4bln for Q3 and Q4–not enough to stress out the bond market today. Bottom line: no discernible reaction to the auctions or the Treasury news.  On to econ data now, starting with Tuesday’s Job Openings at 10am ET.

Market Movement Recap

10:17 AM Sideways to slightly weaker overnight. MBS down 2 ticks (.06) and 10yr up 1.6bps at 4.404

11:35 AM No major reaction to 2yr auction, nor would we expect one.  MBS down 3 ticks (.09) and 10yr up 2.6bps at 4.415

01:43 PM No major reaction to 5yr auction despite much weaker results. MBS down 2 ticks (.06) and 10yr up 1.9bps at 4.408

03:42 PM No reaction to Treasury borrowing estimates. MBS down 2 ticks (.06) and 10yr up 2.5bps at 4.413

If any given week of movement in the mortgage rate world came with disclaimer, this one would be: “Warning. An absence of volatility on Monday has no bearing on odds for volatility in the rest of the week.” More simply put, you’re essentially guaranteed to see more rate movement over the next 4 days simply because today saw none. Of all of the days this week, Monday was the best candidate for a ho-hum level of movement because it was the only day without any major economic data on tap. Rates are based on bonds, and econ data is a key source of inspiration for bonds.  While not technically econ data, there were a few scheduled events today that may have mattered, but ultimately didn’t.  These included several Treasury auctions as well as Treasury’s borrowing estimates for the quarter. After accounting for technicalities and timing, this quarter’s borrowing estimates were only 4 bln higher than previously predicted.  When the average borrowing amount has been running around $500bln, this is essentially an accounting adjustment and it’s no surprise that the rate market didn’t care.

“Since it started raining, all my husband has done is look sadly through the window. If it gets any worse, I’ll have to let him in.” (My son Robbie finds himself today in Hudson, Wisconsin, where there is indeed a chance of rain in 90 degree heat.) At what point does “extreme” weather become “commonplace,” and the public immune? The roller coaster of weather within the nation continues, just ask the rain-drenched East Coast, now roasting, sunbaked West, and flood-impacted Texas, all impacting lenders and servicers. The same with real estate values. Places like Florida, Phoenix, and Las Vegas are subject to violent swings in supply and demand, and price roller coasters, impacting LTVs. Unfortunately for homeowners in Las Vegas, it appears that they’re in a downdraft. Meanwhile, investors are snapping up a growing share of U.S. homes, including in Las Vegas, as traditional buyers struggle to afford one. (Today’s podcast can be found here and this week’s are sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products – nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics – unite the people, systems, and stages of the mortgage process. Hear an interview with American Bankers Association’s Rod Alba on disparate impact and how we can get to a place of better regulation from Washington D.C.) Products, Services, and Software for Lenders and Brokers Simplify your operations and grow your business effortlessly with Encompass® by ICE Mortgage Technology®. Designed to connect and accelerate every stage of the lending process, Encompass allows mortgage lenders to streamline workflows and save valuable time on every loan. Click here to learn how GMFS Mortgage leverages the platform to help her team boost productivity and scale with confidence.

Given that a bilateral trade deal between the U.S. and EU was announced over the weekend, markets haven’t moved much at all in response. 10yr yields were briefly lower overnight and are now inconsequentially higher in early domestic trading.  Perhaps the uncertainty surrounding U.S./China negotiations is keeping traders cautious. On a less speculative note, while Monday doesn’t offer any big ticket econ data, there are two big Treasury auctions (2yr and 5yr). Not only is this a day earlier than normal, but it’s also a double whammy. Treasury notes/bonds usually get their day, but this week’s schedule is accelerated due to month-end falling on a Thursday.  In addition to month-end (a trading motivation in its own right) and Treasury auctions, there is a slew of relevant econ data starting tomorrow as well as a Fed announcement on Wednesday.
Without any meaningful market movement to discuss so far this week, let’s take a look at the big (and bigger) picture.  With the exception of summer 2024 and the subsequent rebound, not much has happened for rates since hitting the ceiling in late 2023.  Since then, once could easily argue there’s been general consolidation around 10yr yields just under 4.5%.  

Another manifestation of that same consolidation has been especially convergent on the midpoint since the late 2024 lows, with only one brief breakout on tariff announcement week.

What does this all mean? The market can’t see a compelling reason to trade 10yr yields up to 5%+, nor can it make any immediate case to break below 4.0% (and 4.5% is in the middle).  Much remains to be learned regarding the final impact of yet-to-be-finalized trade policies as well as the state of Treasury issuance–perhaps the more critical wild card when it comes to the bond market’s ability to rally like it used to.

The agency has a proposed repeal in place, getting ready to be made public on July 28, which would rescind another Biden-era fair housing policy.

Numbers on use and performance point to potential for nonpublic insurers to take on a greater role but also suggest there are limits to it, Fitch Ratings found.

Mortgage profits improved on both a quarterly and annual basis, but leaders said low housing affordability and industry competition remain obstacles to growth.

The Community Investment and Prosperity Act would increase the statutory cap for bank investment into community development projects, unlocking “billions in capital” that can be directed to affordable housing.

Given FHFA Director Bill Pulte’s history of making regulatory pronouncements via X, some theorize the release of Fannie Mae and Freddie Mac could occur in the same way.

Bonds Brace For Stormier Weather After This Week’s Smooth Sailing

Despite a few inconsequential ups and downs, bonds ultimately traded with forgettable, sideways momentum this week. Friday did nothing to change that–especially after mid-day gains courtesy of optimism surrounding over-the-weekend trade talks between the U.S. and the EU. The gains corresponded with the news headlines about the U.S./EU meeting and bonds held steadily sideways after that. The incoming week is completely different in terms of calendar-based volatility potential.  There are relevant events on every single day culminating with “peak relevance” in the form of Friday’s big jobs report. 

Econ Data / Events

Durable Goods

-9.3 vs -10.8 f’cast, 16.5 prev

Core Durable Goods

-0.7 vs +0.2 f’cast, 2.0 prev

Market Movement Recap

10:48 AM Moderately weaker overnight and sideways to slightly stronger in the first few hours.  MBS only down 1 tick (.03) and 10yr up 1.1bps at 4.409

01:31 PM Solid gains starting just after noon E.T. on US/EU trade talks set for Sunday. MBS now unchanged and 10yr down 1.4bps at 4.383

04:34 PM Mostly holding gains into the close.  MBS up 1 tick (.03) and 10yr down 1.1bps at 4.387