Ultimately a Very Drama-Free Day; Back to Watching Data

Tuesday helped buck the recent trend of frustratingly counterintuitive selling sprees in the bond market.  The amount of blame assigned to politics or to the arcane practices dictating monthly positioning in bonds can be debated, but there’s less urgency on that front with today bringing moderate improvement.  Fed Chair Powell’s appearance at SINTRA was a non-event, but perhaps in a “no whammies” sort of way.  Bonds gradually improved during his time on stage but lost some ground after the JOLTS data (as it should be, considering the higher than expected reading).  Buyers held firm, however, and we hit the close with gains intact.  To some, that’s proof positive that there’s no glacial repricing of risk following the presidential debate.  To others, it’s a suggestion that it didn’t matter as much as it may have seemed.  Either way, we have big ticket data to look forward to in the next two business days.

Econ Data / Events

Job Openings (lower = better for rates)

8.14m vs 7.91m f’cast, 7.919m prev

Job “Quits” (lower = better for rates)

3.459m vs 3.452m prev

Market Movement Recap

09:46 AM Moderately stronger overnight with additional gains in early trading.  MBS up more than an eighth.  10yr down 4bps at 4.423

11:00 AM Some weakness after JOLTS, but improving again now.  MBS up 7 ticks (.22) and 10yr down 3.1bps at 4.433

02:53 PM Modest additional improvement with 10yr down 2.9bps at 4.435 and MBS up 6 ticks (.19)

04:54 PM Closing at decent levels, right in line with the previous update.  

As is often the case with internet headlines these days, the headline overstates the reality on the ground–or at least over-dramatizes it.  Considering the last notable “ceiling” was seen less than a month ago and that the last short term ceiling, less than a week ago, the word “finally” probably doesn’t apply.  And then there’s the word “ceiling” itself.  In this case, it’s used only because there isn’t one convenient word to say “a day where mortgage rates moved at least slightly lower after 2 or more days spent moving noticeably higher.”   In other words, that happened today. It’s refreshing or reassuring any time rates stop moving higher after a somewhat abrupt jump remains in place for more than a day.  In the current case, the past two days merely look like slightly bigger continuations of a gentle uptrend in rates that’s been in place since mid June. From here, economic data will take center stage with important reports on each of the remaining two mornings of this week (Thursday is closed for Independence Day). Of those, it’s Friday’s jobs report that has far more power to cause volatility.

It’s been an interesting and frustrating couple of days for the bond market with yields spiking for reasons that leave many bond watchers guessing.  A market participant who’s heavily involved in month-end trading/positioning may be more inclined to see the sell-off through that lens.  A market participant who is more focused on politics would favor the political explanation (i.e. increased odds of a GOP sweep after the debate).
Either way, the weakness was not conveniently tied to a single moment and headline in the manner typical of big ticket economic data or Fed speeches.  Today’s session begins to heal those wounds to some extent. Fed Chair Powell spoke at the SINTRA conference, but didn’t have anything new or remarkable to say.  Bonds seemed to appreciated the absence of hawkish comments as they nursed a gentle overnight rally. JOLTS data was close to consensus and kept yields in the AM range despite initial selling in the day’s heaviest volume.

Cracker Jacks, Quaker Oats, Ferris Wheels, and 1893 Chicago have something in common. World’s Fairs, and World’s Expos, have pretty much gone away due to financial issues. A lot has happened since then, financially, and otherwise. Equifax was founded in 1899. The modern credit card, able to be used at various merchants, was developed in the 1950s, when many of today’s loan officers were entering the business. (Ok, just kidding.) FICO (legal name: Fair Isaac Corporation) began in 1956. FICO’s latest news came out yesterday with Encompass Lending Group and Equity Resources, Inc. being the latest to adopt FICO® Score 10 T. Meanwhile, the Mortgage Bankers Association and others have stated that credit-related price hikes have cost lenders & consumers hundreds of millions of dollars. FICO’s executives are well paid. FICO’s stock, at around $1,500 per share, has a price earnings ratio at around 77 (versus the S&P 500 average of around 25) although the only product with any great revenue growth is mortgage credit scores. (Other lines are flat or mediocre.) Observers suggest that Fair Isaac may only have two choices going forward: keep raising mortgage credit score prices even higher or watch its stock price plunge. Some give it near-monopoly status; American Economic Liberties Project’s Matt Stoller uses the word “cartel” when it comes to Experian, TransUnion, Equifax, and FICO. (Today’s podcast is found here and this week’s is sponsored by Bundle, the attorney-prepared legal documents company that is dedicated to the real estate, mortgage, and title industries. Fuel your operations and execution of documents from deeds to subordinations to assignments, and everything you need for any order, in one bundled price; receive 20 percent off using the code “Chrisman” at checkout. Hear an Interview with FirstClose’s Tedd Smith on a new national consumer survey that explored homeowners’ level of awareness of home equity and how it could be used to pay down higher interest credit card debt.)

The Consumer Financial Protection Bureau found forbearance hurdles for borrowers included endgame questions, and also noted a high share of multilingual users.

Household borrowing from mortgages and other loans hit a record, outpacing inflation, a study shows.

Ficklin has been the CFPB’s only fair lending director since 2011, establishing the office under Elizabeth Warren and pushing fair lending enforcement beyond mortgages into other financial products such as credit cards.

However, a significant minority, more than one-in-10, stated although they want to buy, they will never be able to afford to do so, Insurify found.

The latest headcount reduction impacted another office previously belonging to Computershare Mortgage Services, a servicing company Newrez acquired in May.

Changing The Narrative to Fit The Market Movement

Often, if not most of the time, one can observe the core ingredients of any given trading day and reasonably predict the nature of the bond market’s reaction.  At the very least, there’s a certain basic level of causality that tends to play by the rules more often than not.  For instance, if a report like ISM Manufacturing comes in weaker across the board, it’s reasonable to expect bond yields to fall, all other things being equal.  To be fair, that actually happened today, but only for about 70 seconds before yields began selling off again, ultimately hitting the highest levels in more than a month.  Such a counterintuitive move sends analysts scurrying for narratives to fit the market movement.  In this case, all we have are the now familiar month-end/new-month trading patterns and “politics.” The latter is a can of worms–not because of the charged nature of the topic, but because of all the ifs, thens, assumptions, and yeah buts required to to make the narrative fit. 

Econ Data / Events

ISM Manufacturing PMI

48.5 vs 49.1 f’cast, 48.7 prev

Market Movement Recap

09:06 AM Just barely weaker overnight with additional selling at 8:20am CME open.  MBS down an eighth and 10yr up 4.9bps at 4.446.

10:51 AM Additional weakness after ISM data, but not necessarily because of it.  MBS down a quarter point and 10yr up 8bps at 4.477

02:28 PM weakest levels now with MBS down just over a quarter point on the day and 10yr yields up 9bps at 4.487