Uneventful Monday With Modest Gains

From a volume standpoint, both Friday and today were very light.  This isn’t a surprise at this time of year, nor is the absence of any meaningful impact on the bigger picture trend (contrast this to last Monday which was the 2nd highest volume day of the year and truly exceptional for a number of reasons).  Today means the bond market is falling back into a vanilla routine that involves consolidation ahead of this week’s big ticket economic reports.  There could have been modest losses or gains without affecting the set-up.  As it happened, we got the version with modest gains.

Market Movement Recap

09:55 AM Sideways overnight with early modest volatility.  10yr down half a bp at 3.937.  MBS up 2 ticks (.06).

12:17 PM Still choppy, but slightly stronger.  MBS up 3 ticks (.09) and 10yr down 3bp at 3.912

03:57 PM Off the best levels, but still stronger.  MBS up 2 ticks (.06).  10yr down 3.8bps at 3.904

Today was completely different than the previous Monday in that it was a normal, boring day with essentially no change in mortgage rates over the weekend.  Contrast that to last Monday which saw an extension of an already wild run to the lowest levels in more than a year. Since last week, the rate market has corrected back into the lower portion of the prevailing range (as opposed to the super low portion, as seen at the beginning of last week and the end of the previous week).  In other words, if you’d left town on August 1st and returned today, you’d still be seeing the lowest rates since April 2023. The average lender remains in the mid 6’s when it comes to top tier conventional 30yr fixed scenarios.   This could change in the coming days as important new economic reports are released.  Wednesday’s Consumer Price Index (CPI) is the biggest deal, but tomorrow’s Producer Price Index (PPI) could play a supporting role.   As always, there’s no way to know which way rates will move in response to an economic report ahead of time.

With almost three more months of political jabbering, here’s a town in Kentucky that keeps politics in perspective with qualified candidates. In a mix of politics and lending, candidate Trump was quoted (again) saying that he wants more control over the Federal Reserve and setting interest rates. Lenders and vendors, of course, are less concerned with political dickering and more concerned with helping our clients in the here and now. According to Curinos’ new proprietary application index, refinances have increased nicely. “Additionally, July 2024 funded mortgage volume increased 8% YoY and increased 7% MoM. The average 30-year conforming retail funded rate in July 2024 was 7.02, 9bps lower than June 2024 and 36bps higher than the same month last year. (Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. We drill into this data further here.) (Today’s podcast is 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 Mortgage Advisors Steven Cooley on the capabilities of mortgage technology and how lenders are making vendor decisions in the market.) Lender and Broker Software and Services “The mortgage industry is evolving, and appraisers are adapting! The future of valuations is here, with new technologies like inspection-based waivers (IBWs) streamlining the process. IBWs can save borrowers time and money, and lenders need to understand how to implement them effectively. The “Leaders in Lending: Inspection-Based Appraisal Waivers” webinar recording offers valuable insights into the benefits and challenges of IBWs, best practices for implementation, and expert opinions on the future of appraisal modernization. Watch the webinar recording today and stay ahead of the curve in this rapidly changing industry!”

Summertime Fridays and Mondays are prone to low volumes–especially when they are virtually data-free, as is the case to begin the new week.  The perennial downside of low volume is that it can result in higher volatility than would otherwise be seen.  There has been a bit of an uptick in volatility this morning, but it is thankfully resulting in slightly stronger trading levels.  All that having been said, the week doesn’t truly begin until the big ticket econ data starts rolling in.  The biggest ticket is Wednesday’s CPI, but we could certainly see a reaction to Tuesday’s PPI if it’s far enough from forecast levels. 

Remax Holdings had net income of $3.7 million, up from $2 million one year prior, but a non-GAAP measure used for the mortgage business showed a near $200,000 increase in losses.

The company’s mortgage segment, Zillow Home Loans will be its primary emphasis going forward, leaders said in their earnings report.

Democrats Ritchie Torres and Gregory Meeks called on the New York Home Loan bank to follow the lead of its peers and use alternative credit scoring models for collateral to improve consumers’ access to homeownership.

Straightforward, Uneventful Session Caps The Correction

Bonds have been in correction mode for almost the entire week.  Early trading on Monday morning was the only exception with the unwinding of the Yen carry trade dominating the action.  But even then, bonds had given up all of the gains by the close of business on Monday and only continued losing ground through the end of the Treasury auction cycle yesterday.  If there’s one day this week that had the best chance of seeing an end to the correction, today would be it.  And it was!  Dare we say this has all been fairly logical, even if Monday’s initial volatility presented a big curve ball?  If things remain logical, the next big move, for better or worse, stands the best chance to find inspiration from Wednesday morning’s CPI data. 

Market Movement Recap

09:47 AM Steady gains overnight and in early trading.  10yr down 5.6bps at 3.936 and MBS up an eighth.

12:48 PM Mostly flat with MBS up 5 ticks (.16) and 10yr down 6bps at 3.934

04:19 PM Gradual leakage in MBS with 5.5 coupons up only 2 ticks (.06).  10yr yields are still down 5.4bps at 3.939

After starting out at the lowest levels in more than a year on Monday morning, mortgage rates had done nothing but increase through Thursday afternoon.  The bounce was abrupt by typical standards with the average 30yr fixed rate rising nearly 0.3% in just 3 days. Friday brought a small amount of relief as the underlying bond market finally leveled off.  Mortgage rates are based on bonds and bonds take cues from several sources.  One key motivation is the level of “supply.”  In other words, “how many bonds are being sold.”  Supply in non-mortgage-specific bonds still has an impact if the bonds are closely related.  Reason being, if investors are compelled to buy lots of bonds, the yield (aka “rate”) generally needs to move higher to garner sufficient demand. This was the case this week as it related to US Treasury auctions.  Mortgage-backed bonds stick to a very similar path compared to their Treasury counterparts.  As such, rates/yields moved higher across the board.  With all that in mind, Friday would have been the least surprising day to see an end to the mini upward spiral in rates because it was the first day without a big new Treasury auction for the week.  It also saw the lowest supply of corporate bond issuance (another category of bonds that can put some upward pressure on rates amid moments of excess supply). In the week ahead, the market’s focus will shift from supply back to economic data.  Next Wednesday brings the release of one of the most important economic reports, the Consumer Price Index (CPI).  This is the first major measurement of inflation for the month of July.  If it confirms the friendly trends established in May/June, it would likely reinvigorate the recent downward pressure on rates seen last week.  But there’s an equal chance the data disappoints to the upside, thus causing further rate increases in the short term.

“How do you tell when you’re out of invisible ink?” How do you tell when interest rates are “where they’re supposed to be?” Arguably, rates, based on supply and demand, are right “where they’re supposed to be” at any given time. The financial press will be blathering on about the Fed (e.g., whether it will cut rates by 25 or 50 basis points) until September 18th. Most would agree that the Fed should be “behind the curve” and right, rather than “ahead of the curve” and wrong. Of course, no one predicted a 2-day refi boom, and rates have moved back up somewhat. But, of course, every company that owned the servicing rights for a given loan reached out, and borrowers took notice. Treasury yields, like the 10-year T-Note’s, came down, and mortgage rates followed, and then went back up. But investors and bond traders have already priced in a Fed rate cut, to a great degree, because everyone is expecting it, so mortgage rates have already also come down. (Today’s podcast is found here and this week’s is sponsored by PHH Mortgage. If you are looking for a Correspondent Lending partner or an experienced, award-winning subservicer who can manage your forward and reverse, residential and commercial, and performing and non-performing loans, look no further than PHH. Today’s has an Interview with TPO Go’s Phil DeFronzo on all things renovation lending and how expanded product guidelines are helping borrowers.) Lender and Broker Software, Products, and Services