The resilience of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening.

Last year alone, insurers increased their holdings of residential mortgage loans by a whopping 45%, or about $20 billion, according to an analysis by Ellington Management Group.

Bonds Shake Off Retail Sales Impact to End Stronger

This morning’s Retail Sales data may have been right in line with forecasts at the headline level, but components of the report were much stronger than expected.  As such, the initial sell-off made logical sense, or at least it was able to be explained in hindsight.  The rest of the trading day was consistent with 0.0% retail sales growth as bonds slowly regained all of the ground lost in the morning, ultimately hitting the day’s best levels just before the 3pm close.  MBS underperformed 10yr Treasuries but fared roughly the same as the short end of the yield curve (more on that in today’s video).

Econ Data / Events

Retail Sales

0.0 vs 0.0 f’cast, 0.1 prev

Retail Sales Excluding Gas and Autos

+0.8, highest since January

NAHB Housing Market Index

42 vs 44 f’cast, 43 prev

Market Movement Recap

08:35 AM  MBS are back to unchanged levels. 10yr yields are down 3.2 bps at 4.20%.

11:06 AM Doing a decent job holding in positive territory now.  MBS up 3 ticks (.09).  10yr down 3.7bps at 4.196.

02:03 PM Treasuries back at best levels, down 6bps at 4.173.  MBS up an eighth.

03:52 PM Heading out at best levels with 10yr down 6.8bps at 4.165 and MBS up 6 ticks (.19).

The Consumer Financial Protection Bureau’s proposal to eliminate medical debts from credit reports is under attack from debt collectors, which claim the rule will drive up litigation costs and drive doctors out of business.

The National Association of Realtors was looking to reverse the April decision from the D.C. Circuit Court of Appeals that allowed the Justice Department to reopen its probe into the group.

The Federal Reserve chairman has two years left in his term, which he will serve regardless of who occupies the White House. Powell’s term on the Fed Board of Governors expires in 2028.

While the pace of consumer inflation is showing signs of slowing, building material costs are running counter to the trend, according to the National Association of Home Builders.

The wholesale unit is running a month-long special looking to boost the product by waiving the $795 origination fee.

The Sun Also Sets on Bond Rallies

Don’t worry, the headline is much more dire than the underlying message.  Long story short, there are always some counter-trend influences even when the bond market is trending decisively in one direction.  One might refer to the trend since May or to last week’s CPI reaction as decisive.  As such, one might increasingly expect some ground to be given.  We could certainly argue that we’ve seen resistance in bonds ever since the middle of Thursday morning, following the CPI rally.  In a figurative sense, this re-sets the board for the next move, and big ticket economic data helps determine the direction of that move.

Econ Data / Events

NY Fed Manufacturing

-6.6 vs -6 f’cast, -6 prev

Market Movement Recap

10:32 AM Modestly weaker overnight but holding ground so far.  MBS down just over an eighth and 10yr up 4.3bps at 4.227.

01:04 PM Losing some ground as Powell speaks.  MBS down 2 ticks from highs (0.06) and an eighth on the day.  10yr up 4.4bps at 4.227

02:55 PM Still under some pressure, MBS down 7 ticks (.22) and 10yr up 4.3bps at 4.227

03:35 PM Weakest levels of the day for MBS, down 7 ticks (.22).  10yr up 4.6bps at 4.229

We occasionally reference 5 day winning streaks for mortgage rates as the sort of uncommon occurrence that greatly increases the odds of at least a temporary pullback.  Longer streaks do happen, but odds of a pullback increase sharply after 8 days. With all that in mind, today marked the 8th straight day of improvement in mortgage rates. Does this mean we’re destined to see rates move higher tomorrow?  Not necessarily.  First off, we can never be sure we’re destined to see any particular outcome when it comes to the simple question of whether rates will move higher or lower over such a definite time frame. Perhaps more interesting is the fact that the underlying bond market (rates are a factor of bond prices) has already seen a mild pullback that began shortly after last Thursday’s inflation data.  It was just mild enough that the average mortgage lender was able to avoid increasing rates since then. Last but not least, rather than rely on precedent in the absence of context, we should consider that rates have been responsive to a small group of important economic reports.  While it’s not on the same level as last week’s inflation data, tomorrow’s Retail Sales data is one such report.  Simply put, there’s no magic rule that would preclude a 9 day winning streak if Retail Sales happened to fall far enough below forecasts.  Conversely, if the data is surprisingly strong, rates would likely rise and it would have nothing to do with the low odds of 9 day winning streaks.