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What Jobs Report? Bring on CPI and the Fed

Bonds made it almost all week putting on a superhuman display of immunity to bad news, but Friday’s jobs report was the kryptonite.  Whether or not a trader has any criticism for volatility in the payrolls data, they still agreed on the move with 10yr yields up nearly 15bps by the close.  MBS outperformed nicely, as we were hoping they would, thus limiting the worst possible rate sheet outcomes.  In fact, we’re ending the week in better shape than the last and thoughts have already turned toward next week’s bigger ticket events (CPI on Tuesday and the Fed on Wed).  And yes, this is a “dots” meeting for the Fed… 

Econ Data / Events

Nonfarm Payrolls 

272k vs 180k f’cast, 175k prev

Unemployment Rate

4.0 vs 3.9 f’cast, 3.9 prev

Market Movement Recap

08:36 AM Much weaker after jobs data.  10yr up 13.7 bps at 4.425.  MBS down more than half a point.

11:12 AM Holding AM losses uneventfully after modest bounce.  10yr up 12.9bps at 4.417 and MBS down 3/8ths.

01:50 PM Still very little movement relative to AM losses.  MBS down 13 ticks (.41) and 10yr up 13.7bps at 4.425

03:43 PM Stick a fork in the bond market.  It’s done for this week and nothing interesting happened today after the first few minutes following NFP.  Trading levels right in line with the last update… still

There’s a strong case to be made for the fact that interest rates had a sunny predisposition this week.  In practical terms, that simply meant giving more credence to rate-friendly news and trying harder to overlook unfriendly news. But the predisposition was put to the test in a major way with the week’s most significant economic report today.  Nonfarm Payrolls (NFP) is the headline component of the Labor Department’s Employment Situation report.  There are many reports that pertain to the jobs market, but this one is infinitely more important than the rest and this time around, NFP came in much higher than expected. While the chart of nonfarm payrolls looks range-bound, and while the job count has been much higher in the past few years, Friday’s result of 272k represented an uncommonly large “beat” versus the median forecast of 185k, and a big jump from the previous reading of 165k. A move like this makes it seem like the labor market is too resilient to offer much help to the inflation problem (more jobs, more money, more spending, etc.).  Finally, the bond market’s sunny outlook saw a cloud too big to ignore. With that, mortgage rates had their first (and only) motivation of the week to move higher.  But the chart above also illustrates the silver lining.  Specifically, even though rates jumped on Friday, they’re not even halfway back to last week’s highs, let alone the higher highs seen at the end of April.  Part of the justification for such resilience is that the bond market will defer to inflation data (and the Fed’s interpretation of it) above all else in deciding how worried to be about impediments to lower rates.

Whether it was a magical combination of Treasury auction timing and new month trading or a legitimate shift in response to Monday’s ISM Manufacturing data, the bond market seemed to be in a hurry to get in position for a shift in the pace of economic growth.  This sentiment was so entrenched that a very strong ISM Non-Manufacturing reading on Wednesday didn’t even come close to derailing it.  But bond bulls are forced to acquiesce–at least to some extent–after this morning’s exceptionally large beat in nonfarm payrolls (272k vs 185k f’cast). 

Bonds haven’t enjoyed it so far.

If there’s still a case to be made for optimism, it’s that yields are “only” up into the low 4.4’s–still not even halfway back to last week’s highs.

Huh? Michigan passed California in legal weed sales? The folks here in San Diego don’t seem to mind, and many on the street are doing their part to keep up as they have for a long time. The only thing constant through time is change… And time flies. Chuck Norris is 84 years old. Jerry Seinfeld is 70. Vanna White is 67. “Captain Jack Sparrow” is 60. LOs and lenders know that business is cyclical and are working on positioning themselves for the next refi wave. Some top LOs and lenders are now doing 20-30 percent of what they were doing in the pandemic years of 2020 and 2021. The numbers over the months and years bear that out: Curinos calculates that May 2024 funded mortgage volume decreased 5 percent YoY and increased 9 percent MoM. In the retail channel, funded volume decreased 10 percent YoY and increased 9 percent MoM. (Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures.) Today’s podcast is found here, and this week’s are sponsored by Visio Lending. Visio is the nation’s premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Hear an interview with reporter Steven Rappoport on the current home-equity market and how technology in the space is evolving to help originators win business. Software, Products, and Services for Lenders and Brokers If you’re tired of long contracts, failing implementations, or having to change your process to fit your Loan Origination System, maybe it’s time to see what happy Byte clients have known for years in this video. You don’t have to keep suffering with a slow, expensive LOS platform or sacrifice functionality to lower your costs. Designed to be both powerful and flexible, the Byte LOS platform gives you total control over your loan process and the freedom to do business the way YOU want. If you’re a savvy, independent-thinking lender with an uncompromising ideal of how you want to run your operation, request a demo or visit bytesoftware.com to learn more.

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The lender and servicer, coming off multiple consecutive quarters of net losses, has to pay significantly higher interest rates for an additional two year term for this debt.