As hoped, Friday’s big rate spike did not carry additional momentum into the new week.  This is occasionally a risk when rates are responding to big surprise in the jobs report, but slightly less of a risk when the other economic data had been weaker.  All that having been said, it’s not as if we’re seeing a triumphant return to last week’s lowest levels.  Rather, it’s more of a solid show of support at Friday’s higher levels with a very modest bounce.  In terms of our 30yr fixed rate index, the improvement is 0.02%.  There were no significant economic reports or news headlines to inspire volatility, although afternoon headlines regarding progress on trade talks with China may have resulted in bonds losing some ground. All else equal, when bonds lose enough ground, mortgage rates move higher, but today’s afternoon losses were too small to trigger a reaction among mortgage lenders.

For the next several days I am in Florida, in mortgage meetings and the MBAF, and in Saturday’s Commentary I noted the intense flurry of conference activity this week and last (“the MBA’s Chairman’s Conference, New Jersey MBA, the MBA Florida, EPM TAG, MISMO Spring Summit, The Gathering…). One continuing theme, to varying degrees, is conjecture about Freddie Mac and Fannie Mae, and their role in lending. By many accounts, the Agencies are “driving 10 mph in the fast lane.” A focus on ending their conservatorship, which conference goers were told by FHFA Director Pulte last month in New York, would begin in earnest in 2026, apparently has moved to… “now.” (More Agency news below.) A key issue continues to be whether the government’s role in the future will include an explicit or implicit guarantee if we see another 2008. It would be helpful if it minimized the impact on Agency rates, because those rates have a ripple effect through other mortgage products. Our MBA will be focused on educating regulators and Congress about this, since most were not around during previous attempts at removing them. (Today’s podcast can be found here and this week’s are sponsored by Flyhomes. The Flyhomes Guaranteed Backup Contract, available in all 50 states, gives borrowers a bona fide purchase agreement on their departing residence, helping them exclude that mortgage from DTI calculations and remove the home sale contingency when buying their next home, all in under 24 hours. Hear an interview with First American’s Odeta Kushi on why Americans are staying in their homes longer than ever, the economic and policy forces behind this trend, and what it means for the future of housing mobility and market recovery.)

Overnight and early-session trading confirm the bond market is shifting gears and re-entering a sort of cruise control in the prevailing range. Had last Friday’s jobs report been as weak as some of the other data, the range likely would not have prevailed, but as it stands, 10yr yields remain mostly bookended by 4.4 below and 4.56 overhead. There is no relevant data to threaten the range on the first two days of the week.  Even Wednesday’s CPI is playing with an injury (unknown impacts of TBD trade policy) and could struggle to live up to its market moving reputation, even if it’s an exciting number. This leaves the primary big picture motivations in the hands of fiscal/trade headlines (US/China trade talks and/or any meaningful updates on the budget bill in the Senate).

A new proposal from the Senate Banking Committee for the massive budget bill to eliminate this source of funding for the Consumer Bureau is dangerous, writes the president of the Center for Responsible Lending

Interested parties have until July 5 to give their views regarding the new standard for home equity line of credit electronic closing documents.

The Consumer Financial Protection Bureau pinpointed five rules that it wants the White House budget office to review. Details, however, are sparse.

The lender’s former chief of staff alleged the non-QM lender misrepresented loan characteristics to investors and regulators, charges which were never proven.

In her first speech since being confirmed as the Federal Reserve’s vice chair for supervision, Michelle Bowman outlined a set of ambitious pursuits that would overhaul bank regulation and examination.

Perfectly Logical Reaction to On-Target Data

It’s not necessarily a fun fact to face, but today’s bond market sell-off was a perfectly logical reaction to the modest beat in NFP. But wait, what about the negative revisions?! Yes, it’s still a logical reaction. Reasons for this are exhaustively discussed in today’s video, but the short version is as follows. Wednesday’s rally was largely about Wednesday’s data carrying anecdotal implications for Friday’s jobs report. When Friday’s jobs report didn’t deliver the goods, the rally was erased. Revisions didn’t matter because last month’s NFP was a big beat in and of itself and only revised to levels that were still higher than today’s headline.  Bottom line: NFP looks sideways at decent levels–not at all worthy of the concern suggested by Wednesday’s reports and other generally weaker data over the past week.

Econ Data / Events

Nonfarm Payrolls

139k vs 130k f’cast, 147k prev

Unemployment Rate

4.2 vs 4.2 f’cast/prev

Market Movement Recap

08:44 AM Weaker after NFP.  MBS down 6 ticks (.19) and 10yr up 5.7bps at 4.453

12:14 PM weakest levels of the day with MBS down a total of 11 ticks (.34) and 10yr yields up 9.1bps at 4.486. 

03:55 PM Slow, steady selling trend continues (maybe leveling off now) with MBS down 13 ticks (.41) and 10yr up 11.1bps at 4.505

Mortgage rates have enjoyed a nice run since May 21st, with the MND Index (average top tier 30yr fixed scenarios) falling from a recent peak of 7.08% to this week’s low of 6.87%. As recently as yesterday afternoon, rates were still much closer to those lows at 6.89%.  One day can make a big difference and today turned out to be that day. We knew there was a risk of volatility due to the release of the big jobs report this morning. Unfortunately for rates, the news was less dire than markets were prepared for. Specifically, traders of the bonds that influence interest rates were moving into a defensive position after this week’s previous economic reports foreshadowed some extra weakness in today’s jobs report. In this case, the defensive position would equate to “buying more bonds” which, in turn, pushes rates lower. In other words, they’d taken a lead-off toward lower rates based on the suspicion that the data might come out a bit worse than forecast. As it happened, however, the data was right in line with forecasts.  With that, the proverbial runner was quick to return to base with the rate index heading back up to 6.97%. This is a fairly middle-of-the-road rate over the past month and a half.  The implication is that we’re right back in the same holding pattern observed over the past few weeks as we wait for a more compelling shift in the economic data or other key events.