ACNB is acquiring Traditions Bancorp in an in-market deal where the latter’s mortgage ops will add to its insurance and wealth management units.

Mortgage rates technically moved up to the highest levels in 2 weeks today, but that sounds a bit more dramatic than it actually is.  Rates have largely held inside a narrow range close to the lowest levels in 6 months during that time.  Today’s weakness in the bond market just happened to nudge the average mortgage lender slightly above the highs seen this past Monday and Friday.  The average borrower wouldn’t see much of a difference between those rates and today’s. As for the underlying motivation for the movement, it doesn’t merit much discussion or investigation.  After all, we just made the case that recent movements are all just different flavors of “flat.”  Still, we like to get to the bottom of things every day, even when some days are more important than others.   In not so many words, the broader bond market is in the process of adjusting to a new reality in which the Fed begins to cut the Fed Funds Rate.  Ironically, there are times when this will mean that longer term rates like 10yr Treasury yields and mortgage rates will move higher at the same time that shorter term rates (like 2yr Treasuries) are moving lower.  This was a factor today as 2yr Treasuries improved more than twice as much as 10yr Treasuries deteriorated. The coming days are more likely to see bonds/rates reconnect with economic data as a primary motivation.  There are several important reports on Thursday and Friday morning, but the data’s significance will kick into even higher gear in the following two weeks. 

Whatever Happened to Bonds Being Data Dependent?

Bonds began the day in stronger territory and remained stronger through mid-day despite AM volatility.  Some of the volatility was driven by economic data with S&P Global Services PMI coming in higher than expected.  Most of the day’s movement, however, was driven by “something else,” and something else pushed longer term yields higher while allowing short term yields to remain lower.  How do we reconcile that in this era where “data dependence” is so often repeated as the bond market’s prime directive?  First off, while today’s volatility was unpleasant in the afternoon, it was very small in the bigger picture.  It was also not so much about bond market weakness as it was about the yield curve normalizing.  This is not a phenomenon that will always need to play out at the expense of the 10yr and MBS.  That’s just the way it played out today.

Econ Data / Events

Wholesale Inventories

0.2 vs 0.5 f’cast, 0.6 prev

S&P Services PMI

56 vs 55 f’cast, 55.3 prev

S&P Manufacturing PMI

49.5 vs 51.7 f’cast, 51.6 prev

Market Movement Recap

11:00 AM Slightly stronger overnight, volatile after PMI data, but still in the green.  MBS up an eighth.  10yr down 4bps at 4.211.

01:03 PM some weakness before and after 5yr auction.  10yr down 1.4bps at 4.238.  MBS up 2 ticks (.06)

02:02 PM More weakness now.  10yr up 2.2bps at 4.273. MBS back to unchanged levels, down 6 ticks (.19) from highs.

03:56 PM MBS at weakest levels, down an eighth on the day and more than a quarter point from the highs.  10yr up 3bps at 4.281.

While they may not be the most highly consequential economic reports on any given month, today’s S&P Global PMIs were our best shot to see some volatility in the bond market today.  In their defense, they managed to deliver, even if only on a small scale.  As expected, it was the Services PMI that carried more weight, pushing yields higher due to the strong 56.0 reading (highest since April 2022). The selling has been short-lived so far, and almost non-existent in the short end of the yield curve.  In other words, 2yr Treasuries are crushing it today compared to 10s.

That said, the long end of the curve seems to have been operating on slightly different motivations.  The discrepancy in the pace of the move suggests longer dated bonds seeing a few big trades from traders adjusting their
Lastly, we can entertain if the AM rally was driven by rate cut odds improving for July after a particularly strong comment from ex NY Fed pres Dudley (who literally said the Fed should cut in July).  A closer look at Fed Funds Futures suggests no major change to July’s odds.

December contracts, however, do show some reaction.  Either that or traders were seeing other reasons to ramp up rate cut odds around the same time.  Some indecision is warranted due to the absence of a nice vertical drop right at the time of Dudley comments.  

The market will receive more clarity on the shape of the yield curve after today’s 5yr Treasury auction at 1pm ET.

In Utah every year, July 24th commemorates “Pie and Beer Day,” the day in 1847 when the first group of pioneers reached the Salt Lake valley and their leader Brigham Young declared, “This is the right place.” Did I say “pie and beer” day? I meant Pioneer” Day. Sorry. 700 miles on Highway 80 to the west, housing issues continue. Do you think it’s easy, if you’re rich, to buy up the land and build a city? Nope, as billionaires are finding out in California: “Even spending hundreds of millions of dollars isn’t enough to build a city without giving the locals time to get used to the idea or see an environmental impact report.” Hey, if you don’t have the wealth to create a city, or have a private jet that goes overseas but have 60 grand burning a hole in your pocket and like to travel, next year you can jump on a Pan Am flight (yes, you read that right), and do the “Tracing the Transatlantic” itinerary: from JFK it stops in Bermuda, Lisbon, Marseille, London and Foynes, Ireland… All places that have significance to Pan Am and were on the airline’s old routes. (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 Better’s Chad Smith on LO comp, tech trends for originators, and borrower preferences.) Lender and Broker Software, Products, and Services

Interest rates and prices continued to curtail home sales in June. The Census Bureau and the Department of Housing and Urban Development reported on Wednesday that new home sales declined again last month, although the decline was far less severe than the 5.4 percent drop reported for pre-owned homes on Tuesday. Sales of newly constructed single-family homes were at a seasonally adjusted annual rate of 617,000 units , down 0.6 percent from the previous month’s rate of 621,000. The May figure was revised upward from the original 619,000 estimate. June sales in 2023 were at the rate of 666,000. This is  7.4 percent higher than the current figure. [newhomesall] On an unadjusted basis, sales in June totaled an estimated 53,000 units, down from 56,000 the prior month. Year-to-date sales total 356,000, only 0.5 percent of the total during the first six months of 2023. At the end of June, there were 475,000 new homes available for sale. This supply is estimated to be sufficient for 8.9 months at the current sales pace and is the amplest inventory since November 2023.  Less than a quarter of those homes, however, are ready for occupancy. The median price of a new home sold in June was $417,300, $300 less than the median one year earlier. The average price dropped from $507,800 to $487,200. [newhomeprices] Sales in both the Northeast and Midwest moved lower in June. The Northeast was down 7.7 percent from May and 63.6 percent year-over-year and the Midwest lagged the two prior periods by 6.9 percent and 32.8 percent, respectively.

Sluggish gain-on-sale margins however were the result of competitive pricing in the market, the company said.

Witnesses from companies across financial services and housing, including a credit union and a core services provider, attested to the value of AI in fighting fraud and boosting customer service at a hearing in the House of Representatives.

A run-up in mortgage rates and a constrained resale market has enabled builders to capitalize on the fractured U.S. housing landscape.

Nearly 56,000 home-purchase agreements were voided in June with the underlying cause likely affordability, a Redfin report claims.