Mortgage rates began the new week at almost exactly the same levels seen at the end of last week.  There were no major events or economic reports to cause volatility in the underlying bond market, but bonds were able to improve modestly by the end of the day. In general, bond market improvement leads to lower rates.  The catch, in this case, is the improvement was fairly small and that it was offset to some extent by modest weakness earlier in the day.  Even so, a handful of lenders offered mid-day improvements.  Other lenders will technically be more likely to improve tomorrow morning if bond market trading levels are unchanged (and that’s not something that can be guaranteed or even assigned better than a 50% probability). By staying near Friday’s levels, the average lender is just shy of the highest rates in 5 months.  A top tier conventional 30yr fixed scenario is still in the mid 7% range. Volatility will definitely be higher next week due to the calendar of events, but it could start increasing in the coming days as well.  There’s no directional connotation to “volatility.”  It’s an inherent 2-way street.  The direction of the movement will depend on the tenor of the data.  It looks like rates are at least willing to treat current levels as a ceiling, but only if we finally see some friendlier data–something that’s been hard to come by since February.

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It’s no secret that a vast majority of bond market movement these days occurs in response to a small handful of economic reports and the Fed’s quarterly updates on the rate hike outlook (via the dot plot).  That means we see several weeks each month without any big ticket market movers. This week arguably qualifies.  But how could that be, considering Friday’s PCE price index is the same one the Fed refers to as its preferred gauge of the 2% inflation target?  PCE just hasn’t caused big reactions for a few reasons (similarity to CPI and predictability due to other data that comes out earlier).

Assuming the track record of nonreactions continues, the typical pattern of volatility remains intact as the following week brings big ticket data and a Fed announcement (no updated dot plot, and no rate cut, but there could be some change to policy that we’ll discuss next week).
On the topic of volatility, bonds are off to a slow start this week, with no major escalation in the Middle East over the weekend. Some analysts attribute the modest bump in stock prices and bond yields to that absence of flight-to-safety trading.

Scott Reise, senior vice president at Atlantic Bay Mortgage, thinks the mortgage industry is tired, but optimistic for the year ahead.

According to the Federal Reserve Board’s latest financial stability report, persistent inflation and policy uncertainty are the primary worries for banks. Survey respondents expressed heightened anxiety over murky policy outlooks due to geopolitical turmoil and rapidly approaching domestic elections.

Leaders of ORNL Federal Credit Union are piloting Zest AI’s new artificial intelligence-powered assistant to ensure equitable underwriting practices and measure performance against similar institutions.

McCargo stabilized the agency at a crucial time as she helped navigate it through both a pandemic and subsequent dramatic interest-rate cycle change.

The quasi-public entity’s plan to buy certain closed-end seconds would constitute “unnecessary government encroachment,” the Structured Finance Association said.

The mortgage subsidiary of Hilltop Holdings posted another quarterly loss and volume slipped, but management also sees signs of optimism.

Sometimes Sideways is The Best Case Scenario

Granted, there was a possibility that today could have been a rally day for the bond market, but as seen in the overnight trading session, that possibility depended on the escalation of war in the Middle East.  There aren’t many other reasons for bonds to push back too much on recent weakness.  One of the only other reasons would be Friday position squaring and short covering, but that would be just as much of an indication of ongoing bearishness in bonds. In that sense, holding sideways is possibly the best victory we could have hoped for today. The fact that we’ve avoided Tuesday’s high yields through the end of the week could even signal sideways vibes until May, at which point data and the Fed will let us know the direction of the next big move.

Market Movement Recap

09:38 AM Initially stronger overnight, but giving up gains since then. 10yr down 1.7bps at 4.609.  MBS up 1 tick (.03).

10:27 AM 10yr all the way back to unchanged at 4.627.  MBS down 2 ticks (.06)

02:02 PM Broadly sideways and choppy, but currently unchanged in MBS and 10yr.

04:27 PM Still sideways.  MBS up 1 tick (0.03) and 10yr down half a bp at 4.622