This week’s most hotly anticipated report–monthly core PCE inflation–came in 0.2% versus a median forecast of 0.3% this morning.  That’s welcome news for a bond market that’s been concerned about surprisingly high inflation numbers in Q1, but not a wholly resounding victory considering the unrounded number (.249%) was as high as it could have been without being rounded up to 0.3%.  Fortunately, other components of the report also leaned toward the bond-friendly side of the argument.  Cap it all off with an exceptionally weak Chicago PMI and bonds are starting the day with a move back into last week’s 4.34-4.50 range.

The announcement comes after weeks of criticism from the bureau’s director over fees including title insurance and credit scores.

An index of contract signings from the National Association of Realtors dropped 7.7% to 72.3, the lowest reading since the early months of the pandemic.

The assumption process is highly manual and time consuming and the change from Dark Matter enables lenders to pull data from MSP back into the Empower system.

The Department of Veterans Affairs asked servicers to suspend foreclosures beyond May, with exceptions for circumstances like borrower readiness to proceed.

With home prices also climbing up faster than expected for the time of the year, median new loan payments headed higher by more than 2%, according to the Mortgage Bankers Association.

Stale PCE Helped; Fresher Version Up Next

The quarterly vs monthly PCE reports are potential sources of confusion for rate watchers.  To be fair, only the monthly version is a dedicated report.  The quarterly version is simply the sum of the 3 monthly reports + revisions, presented with the GDP release and revisions.  That’s the one that came out this morning, showing that Jan-Mar inflation was another 0.1% lower than initially reported.  Does that have a bearing on tomorrow’s dedicated monthly PCE numbers?  Not this time…  While that was the case last month (because the monthly report was for March… one of the months in Q1), tomorrow’s PCE inflation data is for April.  Thus, it is more interesting and more timely.  If today’s stale update was worth a modest rally, it’s a clue as to Friday’s potential volatility in the event of another deviation from expectations. 

Econ Data / Events

Jobless Claims

219k vs 218k f’cast, 216k prev

Core PCE Q/Q

3.6 vs 3.7 previously 

GDP, Q1 1st revision

1.3 vs 1.3 initial

Pending Home Sales 

-7.7% vs -0.6% f’cast, +3.6% prev

Market Movement Recap

08:53 AM moderately stronger overnight with additional gains after data.  MBS up 7 ticks (.22) and 10yr down 4.2bps at 4.573

11:17 AM additional gains with MBS up 9 ticks (.28) and 10yr down 6.5bps at 4.55

01:33 PM Sideways at the best levels.  MBS up 10 ticks (.31) and 10yr down 7.2bps at 4.543

03:41 PM Still fairly flat, but off the best levels.  MBS up 9 ticks (.28) and 10yr down 6.2bps at 4.553

If we overlook the nearly unchanged performance from last Friday, mortgage rates were on a 5 day losing streak as of yesterday afternoon with the 30yr fixed rising about a quarter of a percent.  That streak ended today as the bond market responded to favorable inflation data and tame comments from the Fed.  We can also consider that some of the recent upward momentum was a factor of this week’s Treasury auction cycle which ended yesterday afternoon.  Mortgage rates are based on bonds that tend to correlate with US Treasuries and the latter certainly took some directional cues from this week’s scheduled Treasury auctions. Speculation aside, there was a clear reaction to this morning’s quarterly PCE Price Index revision.  Even though this data is “stale” by most standards, a mere 0.1% revision lower helped rates drop by 0.05% on average.  While that’s a solid victory for a single day, it means that rates remain in much higher territory versus last week. Tomorrow morning brings the more timely, monthly version of the same PCE inflation data. It will be a new release for the month of April whereas yesterday’s data was Jan-Mar.  If it is 0.1% lower than expected, that would likely be a much bigger deal for bonds and rates, but there’s an equal chance of an opposite result.  Volatility potential is elevated either way.

Pending home sales fell another 7.7 percent in April according to the National Association of Realtors® (NAR). NAR’s Pending Home Sales Index (PHSI) for the month was 72.3 compared to 78.3 in March. Based on purchase contracts for previously owned single-family homes, townhouses, condominiums, and cooperative apartments, the Index was also down 7.4 percent from its level in April 2023. [pendinghomesdata] “The impact of escalating interest rates throughout April dampened home buying, even with more inventory in the market,” said NAR Chief Economist Lawrence Yun. “But the Federal Reserve’s anticipated rate cut later this year should lead to better conditions, with improved affordability and more supply.” The slowdown in the home sale market is clear when looking at the national PHSI since the Federal Reserve started raising interest rates. The index averaged 115.2 in 2022 and 91.9 in 2023. It has not exceeded 78.5 at any point in 2024. All four major regions lost ground for the month and year-over-year. In the Northeast , the PHSI level of 62.9 was down 3.5 percent from March and 3.1 percent on an annual basis. The Midwest index dropped 9.5 percent to 70.7 percent, a decline of 8.7 percent from one year ago. The South lost 7.6 percent and 8.2 percent compared to the two earlier periods to a reading of 88.6. The West’s Index was at 55.9, a decline of 8.5 percent from March and 7.3 percent from the previous April.

Wednesday proved to be frustrating for bond market watchers and fans of low rates.  Yields rose to the highest levels in several weeks without any satisfying provocation.  We knew we’d have more actionable data in the final 2 days of the week and the first installment is proving to be bond friendly. At the time of last month’s initial release Q1’s PCE price index came in at 3.7 vs 3.4, which was bad for rates.  Today’s revision to the Q1 data dropped that number to 3.6–a minor victory to be sure, but one that affords some more hope that inflation is moving back where we want it after an elevated Q1.
Bonds responded positively, but not excessively.  Still, when combined with overnight gains in place before the data, it’s been enough to erase yesterday’s modest weakness.  Note the bigger movement on Tuesday in lower volume and with less justification.  This is the type of random momentum occasionally seen near 3-day weekends and amid a general dearth of relevant drivers.