If it weren’t for the surge of volume in Treasuries lining up perfectly with economic report release times, one might wonder if traders even care that much about economic data right now.  That would be quite the anomaly considering NFP week is traditionally the most reliable time to see data impact bonds.  The counterpoint is that today’s data wasn’t resoundingly stronger than expected.  Jobless Claims were back in line with trend levels, as expected, and monthly core PCE came in right in line with expectations (arguably a bit lower, considering the unrounded number was as low as it possibly could have been without being rounded down to 0.2% vs the 0.3% forecast).  Lesser headlines were weaker than expected, but didn’t help bonds.  Instead, most of this morning’s cues have come from overseas, of all places (thanks for nothing, U.K.). 
The following chart has the same 20bps of y-axis space for both UK and US 10yr yields.  This illustrates where the bond market drama is today, and helps us understand why we’re seeing a late-morning recovery.

Bonus charts just to keep tabs on the evolution of jobless claims data:

I recently went to my favorite local Mexican restaurant, and there was a sign in the window, “Sorry, we are closed due to short staff.” Someone had written below it, “Higher taller staff because I want a taco.” Economics and interest rates were certainly discussed in Denver this week at the MBA’s annual convention, as were the ramifications of the election. “Unfortunately, no one in Congress has uttered the word ‘deficit’ in 20 years.” “Regardless of the outcome of the presidential election, no one should forget the direction Congress takes, given its role in the budget process.” “Sure, mortgage rates are expected to gradually go down, but what if they don’t? Are lenders and vendors ready for that?” “The Fed has over 400 PhD economists. And even with that it can’t precisely predict the future.” (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 DelphX’s Patrick Wood on the credit rating market ahead of the U.S. Election.) Lender and Broker Software, Services, and Products Introducing Curindices, Curinos’ new suite of market indices designed to give you the most relevant insights into mortgage market trends. Updated weekly, Curindices delivers national application, lock, and home value data based on our proprietary, marketing leading, lender-sourced data. Curinos sources statistically significant data to produce these benchmark figures, setting the benchmark for smarter, data-driven decisions in mortgage lending. Follow this link to be added to our weekly distribution list and to learn more about how Curinos helps clients stay ahead of the competition in today’s highly competitive market.

Drey Roberts and his team move to de novo warehouse lender Primis Bank as former home Independent Bank makes a strategic exit.

Eighty percent of respondents say their current mortgage payment is putting a strain on their personal finances, per a Transunion survey.

Government lending leaders also addressed efforts to increase housing stock and affordability in a discussion at the Mortgage Bankers Association’s annual conference.

The mortgage lender lost its license two weeks after Connecticut also axed its ability to originate loans, following an investigation that questioned the company’s financial wherewithal.

The government-sponsored enterprise reported its best quarter of the year in terms of net income as well as single family business acquired as rates fell to 6.08%.

Decent Showing in Light of Stronger Data

Bonds lost ground today, but not as much as one might expect given the 233k vs 115k result in the ADP Employment data.  Granted, ADP is a notoriously imperfect predictor of the NFP number that follows 2 days later, but that never stops markets from reacting on occasions like this.  So what stopped them today?  Some combination of month-end trading, a favorable report on new Treasury auction amounts, “bigger fish to fry,” and perhaps the fact that payroll counts are being taken with a grain of salt due to weather-related disruptions in September.  Ultimately, bonds did manage to lose a bit of ground, but not until well after the morning’s econ data reaction window had passed.  

Econ Data / Events

ADP Employment

233k vs 115k f’cast, 143k prev

GDP Q3

2.8 vs 3.0 f’cast, 3.0 prev

Core Q3 PCE price index

2.2 vs 2.1 f’cast, 2.8 prev

Market Movement Recap

08:40 AM Slightly stronger overnight and weaker after data.  MBS down 5 ticks (.16) and 10yr up 1bp at 4.264

10:32 AM Nice recovery into the 10am hour with 10yr now down 1.7bps at 4.238 and MBS up 1 tick (.03).

01:16 PM less volatility now.  Modest weakness remains.  MBS down 3 ticks (.09) and 10yr up half a bp at 4.259

The jobs report that came out at the beginning of October was a big wake up call for interest rates.  Up until then, the prevailing belief was that the labor market was progressively softening and perhaps at risk of softening too quickly.  The Federal Reserve had singled out the jobs market as an indicator that would dictate the pace of the rate cut cycle that had begun just 2 weeks earlier.   Much of the Fed’s decision to opt for a 0.50% cut as opposed to a 0.25% cut had to do with the previous 2 jobs reports (the one that came out in early August and September).  Both were markedly weaker.  Taken together, they tipped the scales for the Fed.   The early October jobs report not only came in much stronger than expected, but it also revised the previous 2 reports quite a bit higher.  That single moment of economic data completely changed the tone for interest rates, arguably contributing to just as much of the pain we’ve seen in October as any other factor.  The only thing that comes close would be pre-election trading. The next jobs report comes out this Friday morning, but this week has other economic reports that often serve as anecdotes.  Today’s ADP employment report came out much stronger than expected this morning, suggesting forecasters may be undershooting expectations for Friday’s job count. The underlying bond market (bonds dictate rates) maintained as much composure as we could have hoped for in light of the data. There was some weakness in response, but not enough to make for a big change in rates versus yesterday.  Consider this a calm before two storms with the first being Friday’s jobs report reaction and the second being next week’s election-related market volatility.  Either event has the potential to be very good or very bad for rates.

As I head from Denver to the Bay Area early this morning, I thought to myself, “Why are corn farmers great at eavesdropping? Because they have ears everywhere!” Heard in the hallways in Denver. “It sure has become obvious that what got us ‘here’ isn’t going to get us ‘there.’” “FHA delinquencies are truly increasing and are often correlated to the unemployment rate. So, if unemployment begins creeping up, we know what’s next. Forbearance and workout trends aren’t doing well either.” “You gotta figure that any middle-aged white guy walking within 5 blocks of the convention center is in this industry.” (That said, I definitely am seeing some welcome diversity with age, sex, and heritage!) “I am sure glad that my company has servicing. We couldn’t have made it through the last year or two without it.” “I wouldn’t be surprised, if rates stay around where they are for a while,” that we’ll see further cutbacks and/or mergers & acquisitions.” (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 FundingShield’s Adam Chadhaury on the latest wire and title fraud risks as well as best practices for risk mitigation.) Lender and Broker Software, Services, and Products Champions Funding extended a heartfelt thank you to everyone who visited its booth at NAMB National in Las Vegas last week. Attendees left with confidence, knowing the lender has all their Non-QM bases covered, especially with the introduction of two new products designed to knock it out of the park for loan originators and their borrowers. In November, Champions Funding will unveil new and expanded loan programs including Foreign National borrowers with Full and Alt-Doc options, simplifying the process and broadening opportunities for international clients in the U.S. real estate market. Become an approved broker partner with Champions Funding to get access to the hottest products in the Non-QM. Email us to get connected with an Account Executive today.