Third-party origination operations are also going to Mr. Cooper in the $1.4 billion deal, in which the seller cited interest in improving its capital position.

U.S. economic growth accelerated by more than forecast in the second quarter, illustrating demand is holding up under the weight of higher borrowing costs.

Lots of Competing Motivations Causing Volatility In a Narrow Range

Today marked an uptick in the importance of economic data for the week and it had obvious consequences for volatility.  Of particular importance was the higher reading in quarterly PCE prices.  Because this is the first look at Q2 data, it’s one of 4 days each year where the PCE component of the GDP data offers a sneak peek at the full PCE report that comes out the following morning.  the 2.9 vs 2.7 reading suggests there’s extra inflation that will be distributed between April, May, and June.  If June accounts for more than the other two months, tomorrow’s PCE index will be higher than expected, and thus bad for rates.  That accounts for some weakness this morning, but traders are also in the midst of adjusting their yield curve positioning which has resulted in big discrepancies between longer and shorter term rates this week.

Econ Data / Events

Jobless Claims

235k vs 238k f’cast, 245k prev

Durable Goods

-6.6 vs 0.3 f’cast, 0.1 prev

Nondefense ex-air Durable Goods

1.0 vs 0.2 f’cast, -0.9 prev 

GDP 

2.8 vs 2.7 f’cast

Core PCE Prices Q/Q

2.9 vs 2.7 f’cast

Market Movement Recap

08:56 AM Sharply stronger overnight but losing ground after data.  MBS still up 7 ticks (.22) and 10yr still down 5+ bps at 4.24.

11:51 AM Decent amount of volatility in the AM hours.  Slightly negative drift, but MBS still up 6 ticks (.19) and 10yr still down 6bps at 4.229

01:43 PM Generally weaker after the auction, with losses focused on the short end.  MBS still up an eighth.  10yr still down 3bps, but near highs of day at 4.258

Mortgage rates continue moving in very small steps from day to day–something that’s been the case since the Consumer Price Index (CPI) more than 2 weeks ago.  Unfortunately, more of those steps have been higher in the past week, and today is no exception for most lenders. This is counterintuitive to those who closely follow bonds markets and who understand that mortgage rate movement closely matches those underlying market movements.  Reason being: bonds are technically in stronger territory compared to yesterday.  Strength in the bond market almost always coincides with lower mortgage rates, but the timing of that strength can cause some inconsistencies.  For instance, bonds swooned yesterday afternoon and not every mortgage lender saw fit to raise rates in the middle of the business day in response.  Those lenders consequently had to adjust for both yesterday’s weakness and today’s strength in their latest rate offerings. Lenders who issued late day reprices yesterday were able to hold steady this morning or even offer slightly lower rates today. If all of that is a bit confusing, just consider that, despite several ups and downs over the past 48 hours, bonds are in weaker territory than they were yesterday morning during the time when lenders publish rate sheets.  Lenders either took their lumps yesterday afternoon or this morning.   As for motivations, the market is rapidly adjusting its preferences for different durations of bonds.  In other words, 2yr Treasury notes gained a ton of popularity over the past few days and even more since late June.  This is mostly a factor of the shift in the outlook for the Fed Funds Rate.  When traders make these adjustments, it can impact the bonds that more readily translate to mortgage rates.

It was easy to question the notion of “data dependence” in the first half of the week, largely because there wasn’t much in terms of meaningful economic data.  There were also several instances of mystery movement in bonds, forcing analysts to focus on curve trading as a thematic driver.  What is curve trading? 
In not so many words, there’s been a bit of a mad dash to get out of long term and into shorter term bonds since late June. Sometimes the moves line up with data and/or Treasury auctions.  Other times, they’ve been more serendipitous. Curve trading has transcended the available economic data so far this week, but today’s data is finally enough to get the market’s attention.  It also happens to coincide with potential resistance to the extremely quick move in the yield curve over the past 2 days (starting right after the 2yr auction).

Data has been a 2 way street this morning with an initial sell-off followed by a recovery that coincided with opening weakness in stocks. Admittedly, this is not the prevailing short term relationship between stocks and bonds these days, but that may change as the Fed rate outlook solidifies and as investors watch for signs of economic contraction and/or cooling in equities. 

As lenders continue to deal with change (the latest rumors have Flagstar is selling its mortgage group to Mr. Cooper; rumor only, ask your rep for real information), many people took note when ex-President Trump claimed, during his recent speech, that, “mortgage rates have quadrupled” during the Biden Administration. So, if Agency 30-year fixed rate mortgages were 3 percent, due to the pandemic, not due to political policies, they’d be at 12 percent now. That is not the case. There are still economics to discuss (Fannie Mae’s Chief Economist Doug Duncan will be interviewed today) but politics seem to be sucking up all the air in the room, and no, this isn’t the situation in a historical third-world nation. The presumptive Democratic nominee dropped out of the race one month before his party’s convention. A former president, and 2024 candidate, convicted of 34 felonies in a New York courtroom. A highly controversial Supreme Court decision on presidential immunity. The most consequential presidential debate in U.S. history. An assassination attempt broadcast on live TV. A judge dismissing additional charges against the former president, citing the Supreme Court ruling. It’s political chaos, and it’s far from finished. (Today’s podcast is found here and this week’s is sponsored by LoanCare, known for delivering superior customer experience as a mortgage subservicer through personalization and convenience, and supporting MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with AXIS’ Michael Simmons that provides a “finger on the pulse” of the appraisal industry and current trends in the valuation space.)

The embattled Long Island-based bank announced the hiring of nine new senior executives. Most of them have ties to CEO Joseph Otting, who previously held the top job at the OCC and OneWest Bank.

Federal Deposit Insurance Corp. Vice Chair Travis Hill has called for a full reproposal of the Basel III endgame capital standards, emphasizing the need for joint advancement by all three major federal banking agencies and an additional comment period for industry feedback.

Government data reports from June, though, point to an inauspicious start for new construction in the current quarter.

Rent growth will see a decrease of 2.7% and the vacancy rate will grow to 6%, Freddie Mac predicts.