Uneventful Monday Despite AM Volatility

Durable goods data made for a semblance of volatility this morning, with the core components resulting in a small rally at 8:30am.  Bonds bounced back into weaker territory at 9:30am amid NYSE tradeflows.  There was another mini-rally and another mini-sell-off ultimately giving way to an extremely narrow range near unchanged levels for the rest of the day.  MBS outperformed Treasuries by an amount that makes good logical sense on a Treasury auction week.  All in all, it may as well have been a 3 day weekend.

Econ Data / Events

Durable Goods

9.9 vs 5.0 f’cast, -6.9 prev

Core Durable Goods

-0.1 vs 0.0 f’cast, 0.5 prev

Market Movement Recap

08:46 AM Modestly weaker overnight and recovering after Durable Goods data.  MBS unchanged.  10yr down 0.6bps at 3.794

10:01 AM Back into negative territory.  MBS down 2 ticks (0.06) and 10yr up 1.7bps at 3.817

03:19 PM Sideways in a narrow range since the last update.  MBS unchanged and 10yr up 1.4bps at 3.814

In a complaint filed by the Justice Department on Friday, antitrust enforcers said RealPage’s software, which helps landlords set rental unit pricing, has effectively raised prices on renters illegally.

Vice President Kamala Harris’ pledge to deliver 3 million homes has drawn applause from homebuilders, lenders and affordability advocates, but experts are uncertain how her administration would pull it off.

New-home sales in the U.S. bounced back to the highest level since May 2023 as buyers took advantage of lower mortgage rates and more listings to choose from.

In his speech at the Federal Reserve’s Jackson Hole Economic Symposium, the Fed chair said employment losses are now a bigger risk than elevated inflation.

Mortgage fintech Maxwell suggests lenders position themselves closer to consumers as the post-commission changes landscape evolves.

Closing Near Week’s Best Levels

If Friday was going to offer any example of scheduled events causing movement in the bond market, it fell to Powell’s Jackson Hole appearance to do the heavy lifting.  On that note, everything went off in a logical and fairly ideal way.  Powell forcefully confirmed the Fed policy shift despite stopping short of giving any sort of indication on the size of the forthcoming rate cut in September.  Bonds rallied instantly upon the release of the Powell’s prepared remarks and, in the absence of a Q&A session, that was it for the day.  MBS and Treasuries hit their best levels a few moments later and both are heading out the door at almost the exact same levels.

Market Movement Recap

10:03 AM Very flat overnight and into Powell speech, but gaining ground now.  MBS up an eighth and 10yr down 4.7bps at 3.806

01:00 PM Stronger after Powell and flat since then.  MBS up 5 ticks (.16) and 10yr down 3.4bps at 3.82

03:38 PM Near the best levels with MBS up 9 ticks (.28) and 10yr down 5.1bps at 3.803

Every year, the Federal Reserve (aka “the Fed”) gathers in Jackson Hole, WY with a bevy of other central bankers and academics to discuss and comment on monetary policy in a setting that’s slightly less formal than normal.  Despite the scenic backdrop, Jackson Hole speeches by the Fed Chair have a somewhat reliable history of relevance to financial markets–especially those that dictate interest rate movement. In this year’s case, the symposium was almost perfectly timed to give Chair Powell an opportunity to append his last major appearance in the press conference that followed the Fed meeting just over 3 weeks ago. Rates liked what he had to say back then as well, but in today’s speech, he said it a bit more forcefully. In not so many words, Powell made it clear that the default game plan is to cut rates at the September meeting just under 4 weeks from now.  In fact, as far as financial markets are concerned, the only uncertainty is whether the rate cut will be the minimum 0.25% or double that amount.  To be fair and clear, that’s about where the market ended up after the last speech, but that was followed by several big ticket market movers that temporarily convinced traders the Fed would be cutting by AT LEAST 0.50% a few short days later. Over the 2 weeks that followed, several economic reports forced a rethink of those assumptions, thus putting Powell in a position to put a ceiling on near term rate expectations (rather than comment on how quickly rates might move lower).  His speech certainly delivered said ceiling and also stayed clear of signaling any low rate exuberance. 

“There’s a fine line between a numerator and a denominator. Only a fraction of people will find this funny.” Our business is a business of numbers. My son Robbie and I were fortunate to spend some time with the MBA’s Chief Economist Mike Fratantoni, Ph.D, earlier this week who mentioned that there is $500 billion in home equity debt compared to about $33 trillion of total home equity in the U.S. You gotta figure that many people who own their homes free and clear aren’t going to obtain a home loan. But still, there’s a lot of room for 2nds and HELOCs! In other primary market supply news, there are fewer loans to find buyers or portfolios for: we recently learned that single-family home building decreased by 6.8 percent and building permits decline 4 percent. (In the primary markets, this is bad news for home buyers as they continue to struggle with the lack of supply.) Want some good news? FHA delinquencies are now above the pre-COVID book, but FHA foreclosure levels are still very low. (Today’s podcast is found here and this week’s is sponsored by Candor. Candor’s authentic Expert System AI has powered more than 2 million flawless, hands off underwrites. Every credit risk decision Candor makes is backed by a Warranty, eliminating repurchase worries. Hear what Robbie says is one of his favorite interviews year-to-date, with Imperial Fund’s Jared Neale on all aspects of residential mortgage-backed securities, from how they are packaged to current market demand.) Lender and Broker Software and Services

It’s been a slow, uneventful week so far in terms of scheduled events.  Even though we certainly saw some elevated volume and volatility over the past two days, trading levels continued to grind mostly sideways in the lower middle portion of the range.  If we had to pick one wild card event for the week, it would be Powell’s Jackson Hole speech, which the market saw as a potential venue to confirm or comment on the certainty and pace of rate cuts in the upcoming Fed meeting.  While the speech itself made no comment on 25bp vs 50bp, Powell’s forcefully assumptive tone (i.e. “the time has come for policy to adjust.  The direction of travel is clear.”) is fueling the sharpest bond rally of the week so far.  
(full text here: https://www.federalreserve.gov/newsevents/speech/powell20240823a.htm )