The Fed expected to be able to cut rates 3 times in 2024 as recently as March. Financial markets agreed. But the data that’s come out since then has everyone singing a different tune.  This week’s data was more of an afterthought compared to last week’s. The chart above pertains to Fed rate expectations, and that’s not exactly the same as longer term rates like mortgages and 10yr Treasury yields.  The latter saw a bit more volatility this week. Monday’s Retail Sales data was much stronger than expected and markets reacted immediately.  Tuesday’s data was consequential, but it was followed by a speech in which Fed Chair Powell had an opportunity to provide some updated thoughts on the rate outlook.  After all, the Fed hadn’t seen the most recent CPI data (and several other strong reports) at the time the last round of rate projections came out in March. As the market expected, the tone is evolving.  While Powell and the Fed repeat that the rate path depends on economic data, it’s no surprise to see recent comments acknowledging a surprising amount of strength in the recent data.  Stronger data means fewer rate cuts.  Powell went as far as saying there was new uncertainty as to whether the Fed will even be able to cut in 2024. Two days later, NY Fed President John Williams struck similar tone.  Just last week, he had pushed back on the CPI data, saying the Fed wasn’t surprised by setbacks in the inflation data.  This week’s comments did more to acknowledge the other side of data dependency.  Specifically, Williams said the Fed could hike again if the data called for it.  

It is “Take Your Child to Work Day” next Thursday which, if you work from home, is probably like a day off from school for the tyke. (I won’t be bringing my son Robbie to work, who, as I write this, is pedaling from Chicago to New York and bunked down last night in Union Home’s Bill Cosgrove’s humble abode.) I do not track his exact whereabouts, but we all know that, in having a smart phone, one gives up pretty much all of their privacy. For example, a new working paper posted to the National Bureau of Economic Research sought to examine the polling data that indicates 22 percent of Americans reported attending religious services on a weekly basis. They did this by looking at geodata from smartphones of 2 million people in 2019, and found that while 73 percent of people did indeed step into a place of worship on a primary day of worship at least once over the course of the year, just 5 percent of Americans studied in fact did so weekly, significantly smaller than the data people reported to pollsters. (Found here, this week’s podcasts are sponsored by Optimal Blue. OB’s smart solutions automate critical functions like pricing, hedging, trading, and social media. More originators and investors rely upon Optimal Blue’s integrated solutions, data, and connections to support their unique business strategies, no matter how complex. Hear an interview between Robbie and me on a variety of topics in mortgage that are germane to the Daily Commentary.) Lender and Broker Products, Software, and Services

The overnight session began with a very clear flight to safety in stocks (sell) and bonds (buy) on headlines regarding increased hostilities between Iran and Israel.  There have been plenty of “increased hostility” headlines this week that have not had much impact.  These were different because the initial newswires played up the risk to Iran’s nuclear sites.  Shortly thereafter, the IAEA said there was no damage to nuclear sites and Iran said there were no plans for retaliation, despite previous warnings to the opposite effect.  With that, stocks and bonds began grinding back in the other direction–an effort that continues into early domestic trading.

The increasing frequency and severity of droughts was top of mind for panelists at AmeriCatalyst’s “Going to Extremes” conference Thursday.

In a Senate hearing, Director Sandra Thompson said a raise to the required income threshold provided to affordable housing was on the table, while housing regulators also faced questions related to property insurance hikes and title insurance waivers.

The nonpayment rate for non-qualified mortgages is up 21 basis points from February and 134 basis points from March 2023, Morningstar DBRS said.

The government mortgage-bond guarantor will require additional information on foreclosure prevention actions, and retire some forbearance reporting.

But views are split, at least in the near-term on whether rising mortgage rates are holding back the Spring home purchase season.

Good News and Bad News About Today’s Selling

The bad news is that bonds resumed their weaker tendencies today with 10yr yields moving back up into the 4.6’s.  Culprits included stronger economic data, hawkish Fed comments, and possibly the fact that the previous day’s gains were driven by corrective short-covering.  The good news is a bit of stretch to be considered as such.  In order to do so, we must consider that today’s high yields stopped well short of the high yields seen on Tuesday.  This pattern of “lower highs” is often seen at the beginning of a sideways consolidation, effectively ending the previous directional trend (at least for the time being).  It’s a bit too soon to conclude that’s the way things will play out this time, but on an objective note, today was the first time since April 5th that yields made it past the 48 hour mark without hitting a higher high. 

Econ Data / Events

Jobless Claims

212k vs 215k f’cast, 212k prev

Philly Fed Index

15.5 vs 1.5 f’cast, 3.2 prev

Philly Fed Prices

23.0 vs 3.70 prev

Market Movement Recap

08:37 AM roughly unchanged overnight a hair weaker after data.  MBS down 1 tick (.03) and 10yr up 1.7bps at 4.606.

09:41 AM Back to weakest levels after NYSE open.  MBS down an eighth.  10yr up 3.6bps at 4.625.

12:39 PM More Losses.  MBS down 10 ticks (.31).  10yr up 5.4bps at 4.644

03:13 PM hovering sideways near weakest levels.  MBS down 9 ticks (.28).  10yr up 4.8bps at 4.638

Tuesday marked the highest mortgage rates since November, capping a mini surge that began after last week’s inflation data. After a moderate improvement yesterday, rates moved back up toward (but thankfully not above) the recent highs today.  Financial markets reacted to stronger economic data and comments from Federal Reserve officials regarding the possibility of no Fed rate cuts in 2024 and even a small chance of rate hikes.  Importantly, Fed members don’t see hikes as being likely and the economic data would have to accelerate enough to justify a change in strategy.  We’re definitely not there yet, but we’re just as certainly not there when it comes to lower inflation readings required to validate the first rate cut.  At the March Fed meeting, officials still saw 3 cuts by the end of the year, albeit just barely.  Based on data that’s come out since then, markets are betting on only one cut. Other news sources are running headlines regarding a big jump in mortgage rates to 7.10% based on Freddie Mac’s weekly survey results released today.  Keep in mind that’s a weekly number based on average of last Thursday through yesterday and that it doesn’t account for the impact of discount points.  In other words, rates are definitely not 7.1 today, and especially not without points.