For most lenders, you’d still see modestly lower rates on several days in mid May, but apart from that, you’d need to go all the way back to early April to see anything lower.  Said differently, today’s rates are fairly close to the lowest levels in 3 months. If the 3 month distinction is to be earned in the near term, it will come down to the incoming economic data.  Scheduled reports on the labor market, economy, and inflation will help shape expectations for Fed rate policy and thus exert immediate influence on interest rates.  This is a big week for such data with additional reports in the coming days, including Friday’s jobs report which is typically one of the two biggest rate movers on any given month. Today’s data showed job openings coming in lower than expected for the month of April.  While it’s not as timely as the upcoming report on Friday (which is for May), it has nonetheless been important in the past year.  Lower job openings connote lower rates, all other things being equal.   All that having been said, the bond market (which underlies rate movement) had a fairly steady day of improvement, even after attempting to isolate the influence of the job openings data.  This could speak to a bit of anticipation for the rest of the week’s data to be similarly downbeat.  The risk here is that the data manages to surprise to the upside and cause a volatile bounce back toward higher rates. 

More Gains After JOLTS, But They Might Have Happened Anyway

The winning streak continues for the bond market with 10yr yields dropping roughly 6bps by the 3pm close, just barely edging under the 4.34% technical level.  Improvement was linear through 2pm with only a temporary volatile reaction to the JOLTS data.  It’s not entirely clear that the mid-day gains had anything to do with JOLTS, in fact.  It’s just as easy to argue that the bond market is taking a lead-off in anticipation of softer economic data ahead.  That’s all well and good unless the data finds a way to surprise to the upside, but even then, some hope would be held out for the next CPI report next Wednesday.

Econ Data / Events

Job Openings (via JOLTS)

8.059m vs 8.34m f’cast, 8.355m prev
Lower = better for rates

Job “Quits” 

3.507m vs 3.329m prev 
lower = better for rates

Market Movement Recap

08:58 AM moderately stronger overnight thanks to Europe.  MBS up 2 ticks (.06) and 10yr down 3.6bps at 4.355

10:05 AM Modest gains after mixed JOLTS.  MBS up an eighth.  10yr down 4.8bps at 4.343

01:56 PM Modest additional gains into the PM.  10yr down 7bps at 4.321.  MBS up an eighth in 6.0 coupons and nearly a quarter in 5.5 coupons.

04:06 PM Off the best levels, but holding most of the gains.  10yr down 6.1bps at 4.33 and MBS up 5 ticks (.16).

Once again, the bond market is starting the domestic session with 10yr yields several bps lower day-over-day.  We can credit European bonds for that overnight influence which, in turn, can credit things like weaker employment data, lower oil prices, and optimistic expectations for this Thursday’s European Central Bank (ECB) announcement. Also in the same vein as yesterday, MBS are not doing quite as well as their Treasury benchmarks, even if we use a fairer comparison like 5yr Treasuries (up an eighth of a point in price versus only 0.03 for 6.0 UMBS).  This could be as simple as modestly elevated supply in newly originated MBS combined with normal patterns surrounding Treasury auctions and jobs week.  It will merit a deeper investigation if the trend continues next week.
Here’s a quick and dirty way to use MBS Live charts to check relative performance in MBS over various amounts of time.  At a minimum, use a 5 day chart, but 1-3 months is probably ideal.  In this example, we use a 1 month chart which captures two good recent highs and lows.  We’re also using a 5yr Treasury yield as that will be even more forgiving (i.e. if MBS are still not doing as well as the 5yr, it’s even easier to say they’re underperforming).  As for the methodology, it’s as simple as seeing how each security is doing relative to the recent highs and lows.  In this case, MBS is still about 30% below its recent high whereas the 5yr is very close to making it back to its recent low.

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The changes that affect how buyer broker commissions are paid go into effect on Aug. 17, but there’s much uncertainty about carrying them out, said Ryan Tomasello of KBW.

Distressed borrowers in parts of Maine, Nebraska and West Virginia are the latest to get short-term leniency on government loan payments due to disasters.

The Consumer Financial Protection Bureau Monday completed its rule establishing a nationwide database for a wide swath of financial companies — including payments companies, debt collectors, auto lenders — that have faced regulatory or legal penalties for consumer-related infractions.

Despite the surge of inventory, the number of available homes is still below pre-pandemic levels, while price movements show wide regional variations, ICE Mortgage Technology said.

Forty-four percent of respondents said they expect Trump to seek to to politicize the central bank or limit its power if he returns to the White House. Overall, they put a probability of 40% on the Fed losing its autonomy under a second Trump administration.

Mortgage rates had a rough go of it in the 4 days following Memorial Day weekend (i.e. last week). To be fair, the tough part was limited to the first two days.  Thursday and Friday both helped to undo some of that damage, but the average lender was still at higher levels compared to the week before the holiday weekend. That has changed today.  The bond market (which dictates rate movement) was hungry for more economic data to provide directional cues and rates readily responded to today’s top offering.  The widely-followed ISM manufacturing index came out weaker than the median forecast, both in terms of overall activity and in the component that measures price pressure.  Prices are still elevated according to this data, but they made a nice move in the other direction, thus putting an end to a disconcerting spike that had dominated the year so far. Sharp improvements in the bond market led to another nice drop in mortgage rates.  The average lender is now back to the lowest levels in nearly 2 weeks, but not yet back to the recent lows seen on May 15th.