As of Friday, the average top tier 30yr fixed mortgage rate was merely at the lowest levels of 2024.  A modest additional drop this morning brought that number to the lowest level since April 2023. In the big picture, rates have been moving consistently lower due to an ongoing bond market rally that began in May.  That rally is driven by softer inflation/economic data and an increased willingness on the part of the Fed to consider rate cuts. There are more esoteric factors in play, both for the big picture and the past few days.  These factors have more to do with the plumbing of global financial markets and the mortgage specific bonds that directly dictate mortgage rates.  The net effect is that rates are highly variable depending on the day, the lender, and the client scenario.   All that to say, just because our rate index is now in the 6.3’s, you won’t necessarily see a 30yr fixed rate in the 6.3’s.  In some cases, a 6.625% rate would be considered low.  In other cases with only a few differences, the low rate could be 6.125%.   Either way, you are where you are today, but everyone wants to know where we’re going.  Sadly, predictions are for suckers.  A lot of people predicted the Fed would cut rates multiple times in 2024.  They were shunned in the first quarter as rate cut odds dried up.  Now this morning, some commentators were calling for the Fed to make emergency rate cuts TODAY at the same time the market moved to price in multiple, larger rate cuts by the end of the year.

Wild Ride Leaves MBS Weaker After Super Strong Start

Bonds surged to stronger levels overnight amid a global stock meltdown and flight to safety.  There are several different ways to look at the past several trading days in terms of assigning blame/credit to various motivations.  The reality is almost always some sort of “combo deal” and that’s likely the case this time although the most notable x factor may be the “carry trade” involving Japanese Yen and a perfect storm created by last week’s calendar events (Fed announcement, Bank of Japan rate hike, weak US econ data including jobs report).  10yr yields hit 3.666 at their lows of the day, but closed just under 3.80.  The biggest source of push-back was the decent ISM data this morning, but there was correctional momentum before and after that as well.

Econ Data / Events

ISM Services

51.4 vs 51.0 f’cast, 48.8 prev

ISM Biz Acitivity

54.5 vs 49.6 prev

ISM Prices

57.0 vs 55.8 f’cast, 56.3 prev

Market Movement Recap

08:56 AM Sharply stronger overnight in a global flight to safety.  10yr off best levels, but still down 9bps at 3.698.  MBS up 7 ticks (.22)

10:28 AM Weakest levels of the day after ISM data.  MBS down 1 tick and 10yr up 2bps at 3.768

11:36 AM Negative territory now with MBS down an eighth and 10yr up 1bp at 3.799

02:59 PM Sideways near weakest levels for MBS, down an eighth on the day.  10y half a bp lower at 3.783

This morning I head to Orange County, which has the same population as Arkansas or Nevada, for the CAMP conference where the economy will be discussed. The stock market is not the economy. Lower mortgage rates? Splendid. Critics would say, “No inventory + lower rates = even more pressure in the starter home market for people with jobs.” Meanwhile, capital markets groups everywhere have dusted off their renegotiation policies and are busy reminding loan officers and brokers what EPO stands for: Early Pay Off. When investors buy mortgage loans, and the servicing rights to those loans, they expect to have them on their books for a while, not paying off four months later. Originators always seem puzzled why, when rates move higher, investors are very hesitant about paying 103 or 104 for a loan with a rate above the prevailing market. This is why: to be blunt, they kiss this 3- or 4-point premium goodbye when rates drop. The good news for lenders, and vendors, is that because so many costs have been eliminated, any modest increase in profits might give a big boost to their profitability. (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. Hear an interview today with Private Eyes Background Checks’ Sandra James on how verification services are helping originators close loans faster.)

In the overnight session, the rest of the world decided it was just as concerned about the Fed potentially having waited too long to cut rates as some many investors were on Friday.  Japan, in particular, had a rough night with the Nikkei down 12.4%. European indices were down 2-4% and S&P futures fell into the same range. Even crypto was swooning with BTC losing nearly 20% since Friday.  All that money needed a place to go and the bond market soaked up quite a bit of it.  10yr yields were as low as 3.666% at one point and Fed Funds Futures showed a 50bp cut in September.  
The gains began to unravel even before the ISM data came out, but the data kicked the sell-off into higher gear, ultimately completely erasing the overnight progress in both ends of the curve.  That said, most of the post-NFP gains are intact, and we’re still hugely improved over the levels seen before last week’s Fed announcement. 

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