It’s not too common to refer to a week with Fed meeting minutes as “super slow,” but at the risk of complacency, how could the Fed possibly share any new ideas three weeks ago (the minutes are from the May 1st meeting) amid what has been a vast sea of Fed comments since then?  Moreover, how could any Fed member say anything to surprise the market when all of them have been so consistently on message or at least “near message?”  Beyond the Fed minutes and Fed speakers, there’s very little by way of market-moving econ data until Thursday and even then, the Thu/Fri reports are not traditionally a big deal.  Last but not least, Friday is a half day before a 3 day weekend.  All we can do in such an environment is watch and wait. 
So far, we’re watching modest weakness at the 8:20am CME open, but nothing that changes the prevailing 4.34-4.50 range.  It’s not uncommon to see opening/closing times move the market a bit more than normal when everything else is so quiet.

Moderate, Inconsequential Weakness

Bonds lost ground at a modest to moderate clip on Friday, but not for any interesting or obvious reasons.  The selling has been very linear over the past 2 trading days with Treasury yields fitting neatly inside a simple trend channel.  There is perhaps some small case to be made for excess weakness in European bonds spilling over the a US bond market that has nothing better to do and no compelling motivations of its own.  In the bigger picture, anything that takes place between 10yr yields of 4.34 and 4.50 would be considered very range-bound and that range might not be meaningfully challenged until the first week or two of June.

Market Movement Recap

09:15 AM Modestly weaker overnight with 10yr up 2.3bps at 4.40 and MBS down 2 ticks in 6.0 coupons

12:48 PM weakest levels of the day with MBS down 6 ticks (.19) and 10yr yield up 3.6bps at 4.413.

03:09 PM Just a bit more weakness, but flatting out now.  MBS down just under a quarter point and 10yr up 4.3bps at 4.42

Mortgage rates have had a great month of May so far with almost every day being a winner up until yesterday and today.  Even then, the 2 day losing streak began from the lowest levels in just over 5 weeks.  Perhaps more importantly, apart from the past 2 days, today’s rates would still be the lowest in more than a month. In other words, rates have pulled back only slightly after a solid winning streak.  Granted, you could take an even longer term view and say rates only managed the winning streak because they were at their highest levels in more than 5 months by the end of April, but nobody likes a party pooper. The fact is that everything is almost always relative when it comes to assessing whether rates are doing well or not.  In the biggest picture, little has changed.  Rates are close enough to the highest levels in decades, but they still have a chance to look back at October 2023 as being the long-term high.   Our ability to avoid revisiting last year’s highs relies on incoming economic data.  This week’s Consumer Price Index (CPI) was palatable enough to keep hope alive, but it will take a better showing in June (and probably July and August) if we hope to see true confirmation of a shift.  

We’re only a few days away from the MBA’s Capital Markets Conference. Attendees, don’t forget to pick up your badges, or else! (Speaking of interesting clips, watch U.S. Secretary of State Antony J. Blinken launch the Global Music Diplomacy Initiative; there is a rumor he’ll be on the stage at the next MBA conference.) One of the big topics next week will be servicing rights: transferring, valuing, and managing. The price that borrowers see on rate sheets is a combination of several factors, including mortgage-backed security prices and the price of servicing (which doesn’t always equal the value). Unlike securities backed by Agency mortgages, where there’s an active liquid market with screen prices, in pricing servicing there is no screen to go to. So, a model is employed, and those involved look at the fair market value versus Fair Market Value. (Yes, there is a difference.) A model may value servicing at one price, but it may trade differently resulting in a variance. The market could price a servicing package higher than fair market value, but not often. (Found here, this week’s podcasts are sponsored by LoanCare. The mortgage subservicer is known for delivering superior customer experience through personalization and convenience. Its award-winning portfolio management tool, LoanCare Analytics, supports MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with Performance Experts Tim Braheem on what originators can be doing right now to get more referrals, including a free script to help close more deals.)

Friday’s only scheduled economic report is the Conference Board’s Leading Economic Indicators (LEI) index.  It is not considered a timely market mover and it had no impact this morning despite coming in at -0.6 vs -0.3 forecast.  The slate of scheduled data isn’t much better next week.  The only report with a track record of significance is the S&P PMIs on Thursday, but just the “flash” version (the “final” numbers come out the same week as ISM PMIs in early June). That means next week is nothing but Fed-speak, and since the Fed has had nothing new to say for months, that means next week is nothing.  Combine it with the official 3.5 day Memorial day weekend, and another 3 days (today + this weekend) and bonds have an unofficial 11 day weekend.
But what does an 11 day weekend actually mean in this context?  After all, it’s not as if the bond market will actually be closed next week.  We’re also not suggesting a complete absence of bond market movement.  While we may be a bit jaded on predictable Fed speeches, an anxious market could still jump to conclusions if certain Fed speakers make comments that have a direct bearing on potential changes in June’s dot plot (the summary of Fed members’ projections for the Fed Funds Rate).
To underscore the absence of excitement surrounding the Fed’s outlook right now (and the reason we don’t really care about an extremely active slate of Fed speakers next week), consider the following chart which overlays Fed Funds Rate expectations with longer term bond yields.  Here in the mortgage market, we pay more attention to longer term yields and there’s been a good amount of movement there over the past 2 weeks.  But the Fed outlook hasn’t changed much since the April 10th CPI data (small pop on PCE data at the end of April and a small recovery in the first week of May).

The agency seeks the public’s thoughts on how the regulatory statement governing FHLBanks could better reflect the part they play in housing finance.

The assistance is available for borrowers with sub-620 FICO scores with earnings less than 80% of the Area Median Income, or first-time home buyers with no restrictions.

Late payments on VA loans were up markedly within the first quarter, in contrast to other products, according to new Mortgage Bankers Association data.

Housing starts increased 5.7% to a 1.36 million annualized rate after downward revisions to prior months, according to government data released Thursday.

For the second consecutive week, rates for the 30-year fixed rate mortgage declined as the Consumer Price Index report was better than expected.