It is our longstanding policy to strictly avoid politics except in cases where the political realm legitimately intersects with relevant events for rates. Now is clearly one of those times. The discussion that follows contains no opinion or partisan leaning. Before getting started, let’s catch up with mortgage rates.  Things haven’t been great and much of the media coverage focuses on Freddie Mac’s stale weekly survey number.  Actual daily averages are already much higher. Today didn’t offer any material change on that front, leaving us free to focus on what may lie ahead. There is an objective correlation between various measures of the election outcome and recent rate movement.  Correlation is not necessarily causality, but comments from several high profile investors have bolstered the case for a Trump victory resulting in higher rates.  Notably, many of them qualify that by saying it’s more about the opportunity for full republican control of Congress and The Oval Office (i.e. the red sweep).   On one hand, there is certainly correlation here.  On the other hand, it’s far from perfect.  Additionally, there are other key events in this time frame that definitely account for a good deal of movement in interest rates–possibly enough movement to think twice before assuming we can even know how rates would react to the election. Today’s jobs report reaction provided the latest reason for doubt.  Rates refused to drop after a weak jobs report–something they’d normally be happy to do. There was an initial, reflexive drop in 10yr Treasury yields, as seen in the chart below, but it was quickly erased. Treasury yields are well-correlated with mortgage rates.  A chart like this can show us intraday momentum in the bond market whereas mortgage lenders only update mortgage rates 1-3 times a day depending on volatility.  This was a relatively low volume move for a jobs report-further suggesting the market’s mind is elsewhere.

Not only do most states “gain an hour” Sunday, but I have good news for all my readers. I am getting stronger with age. I can now lift $100 worth of groceries with one hand! Speaking of which, time flies and Thanksgiving will be here before you know it and with it, pumpkin pie. (Yes, I know that this is a mortgage commentary, but even pumpkins have their share of regulation and controversy.) Pumpkin is a variety of squash belonging to the “Cucurbitaceae”, or gourd family which also includes melons and cucumbers. Libby’s, for one, uses 100% Dickinson pumpkins in its Libby’s solid pack pumpkin, not squash. Although pumpkins and squash are very closely related, Libby’s denied that it ever used a “blend” of various squashes in its popular canned pumpkin. The FDA allows for sweet squash blends to be sold under the label of “pumpkin.” “But the ‘Libby’s Select’ strain of Dickinson is our own, developed over decades by our own agricultural people.” (Today’s podcast can be found here, and this week’s is sponsored by Truv. Truv lets applicants verify income, employment, assets, insurance, and switch direct deposits. Unlock the power of open finance, with Truv. Hear an interview with Insellerate’s Josh Friend on a new AI platform that helps mortgage companies identify, convert, and keep customers happy.) Lender and Broker Software, Services, and Products Optimal Blue continues its commitment to delivering high-impact solutions that tackle real-world challenges and help clients maximize profitability with three major product releases: the expansion of its AI assistant suite, Scenario Optimizer, and the free availability of Investor Pricing Insight. The Position Assistant in the CompassEdge hedging and trading platform empowers lenders with critical daily insights into changes in their risk exposure by automatically summarizing the top drivers impacting their hedged mortgage pipeline positions. The addition of Scenario Optimizer to the Optimal Blue PPE enables originators to quickly identify the most favorable loan scenarios, enhancing productivity while strengthening relationships with borrowers through fast, digital service and transparent pricing guidance. The Investor Pricing Insight data solution now offers new functionality allowing investors to benchmark their non-QM rate sheet pricing against other investors in real time, all at no additional cost to investor clients. Read more in the press release.

When the median forecast for today’s jobs report began circulating, many a market watcher felt that the 113k forecast was too low compared to the 254k previous reading, even after considering the potential disruptions from hurricanes and strikes.  Fast forward to today and the 12k (yes that’s TWELVE Thousand) number is surprising even those who were trying to reassure others that the forecast was not too low.  Expectations will continue to be defied as the bond market will likely disappoint anyone who expected a 12k NFP to spark a massive bond rally.  The plan was always to take this number with a grain of salt and instead focus more on the unemployment rate, which happened to come in right in line with expectations. 

In the bigger picture, we can see just how underwhelming the response has been.

Consumers are meanwhile filing objections to the near $1 billion in settlements from the nation’s largest brokerages ahead of a November court approval.

For the eighth consecutive quarter, ICE Mortgage Technology lost money on a GAAP basis. Using a pro forma calculation involving Black Knight, operating income increased from a year ago.

Nerdwallet purchased Next Door Lending for $1 million, SEC filings show.

The Federal Housing Administration wants to allow part-time underwriters to guarantee loans in its FHA Title II forward and HECM programs.

Mortgage rates rose for the fifth consecutive week, to their highest level since August, although they remain more than a full percentage point lower than one year ago.

Will Jobs Data Finally Get Bond Market’s Attention?

It’s been a weird week so far with a crazy combination of significant intraday volatility and an absence of any major movement in the bigger picture.  Case in point, closing levels in 10yr yields have been 4.27, 4.27, 4.28, and 4.28 (at the 3pm CME) close.  That’s an uncommonly flat week for closing levels, but even less common during a week with an absolute range of more than 13bps.  Stranger still is that the volatility has taken few–if any–cues from economic data.  Case in point, today’s biggest market mover was the big sell off in UK bonds.  Does this mean markets may be less interested in reacting to tomorrow’s jobs report as much as normal?  The answer is this simple: never bet against the jobs report’s potential to make waves.  Sure, the ultimate level of volatility could be limited by next week’s unknowns, but a lopsided result in either direction would still be almost guaranteed to push rates in the corresponding direction.

Econ Data / Events

Jobless Claims

216k vs 230k f’cast, 228k prev

Continued Claims

1862k vs 1890k f’cast

Core PCE Prices M/M

0.3 vs 0.3 f’cast, 0.1 prev

Core PCE Y/Y

2.7 vs 2.6 f’cast, 2.7 prev

Market Movement Recap

09:40 AM sideways to slightly stronger overnight and a bit weaker after data.  MBS down 2 ticks (.06) and 10yr up 0.7bps at 4.307

10:12 AM More weakness now with US bonds potentially taking some cues from a big UK sell-off.  MBS down 3 ticks (.09) and 10yr up 1.5bps at 4.314

12:23 PM Bouncing back a bit now as U.K. bonds recover.  MBS unchanged and 10yr down 1.3bps at 4.286

03:07 PM Slightly better recovery.  MBS up 1 tick (.03) and 10yr down 2bps at 4.279

Mortgage rates rates moved moderately higher today, and while that leaves the average 30yr fixed rate only slightly higher than it was on Tuesday morning (7.09 vs 7.08), it’s also the highest rate in almost exactly 4 months. In a break from recent norms, the bond market didn’t take cues from data or election positioning.  Instead, it was a massive move in European bond markets (UK specifically) that spilled over to the U.S. in the morning hours.  Once European markets were closed for the day, US bond markets improved and many mortgage lenders were able to offer token improvements in mortgage rates. Bonds, which dictate mortgage rates, were ultimately able to log a fairly flat performance versus yesterday.  That’s the second time this week they’ve been able to show some signs of resilience, but neither attempt has been very impressive.   The lack of conviction isn’t surprising given the high stakes events on the horizon.  Tomorrow’s jobs report could easily send rates sharply higher or lower.  Next week’s election results and Fed announcement represent similar risks (or opportunities).  There’s no way to know if these high stakes events will be good or bad for rates–only that the potential reaction is huge. NOTE: 7.09% is quite a bit higher than what you may see in other news stories about mortgage rates today.  That would be due to the overreliance on Freddie Mac’s weekly rate survey which is still getting caught up with the day to day reality.