The bond market is getting off to a stronger start today despite an absence of any new motivations in the news or economic calendar.  In fact, the calendar is essentially empty when it comes to market movers.  While we could make a case for some friendly spillover from European bonds, and while the timing and correlation line up fairly well, it was arguably US bond markets leading the charge heading into 9am. Or more accurately, it was Treasuries with the bigger, sharper move. 

Either way, we don’t need to try so hard to reconcile some strength after multiple successive days of significant weakness.  Token bounces are going to happen amid such trends.  It’s just a token bounce unless its friends show up in the coming days.

The only notable items on the calendar this afternoon are the 20yr bond auction and the Fed’s Beige Book.  Both are arguably not really that notable, but they’re all we have.  

Mortgage interest rates rose for the second straight week, and so did the volume of mortgage applications. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, increased 3.3 percent on an adjusted basis from one week earlier and 4.0 percent before adjustment.   The Refinance Index increased 0.5 percent from the previous week and was 11 percent higher than the same week one year ago. The refinance share of activity decreased to 32.1 percent from 33.3 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index was up 5 percent from one week earlier, and the unadjusted version was 6.0 percent higher. Purchasing activity was down 10 percent compared to the same week in 2023. [purchaseappschart]  “Rates increased for the second consecutive week, driven by incoming data indicating that the economy remains strong and inflation is proving tougher to bring down. Mortgage rates increased across the board, with the 30-year fixed rate at 7.13 percent – reaching its highest level since December 2023,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Despite these higher rates, application activity picked up, possibly as some borrowers decided to act in case rates continue to rise. Purchase applications drove most of the increase but remain at low levels of around 10 percent behind last year’s pace. Refinance applications increased very slightly, driven by a 3 percent gain in conventional applications.”

In a motion to dismiss UWM’s suit, Ramon Walker argues the trademark infringement claim made by UWM is a “pretext to muzzle [his] criticism.”

The Federal Home Loan Bank System stepped up advances by 37% or more to Silicon Valley, Signature and First Republic banks ahead of their failures, the GAO says in a post-mortem on last year’s banking crisis. The findings add to the debate about whether the system should be a lender of last resort.

Greater availability of data can make it more attractive to buy MBS with loans to underserved borrowers, translating into lower interest rates for those mortgages.

The two major government-related mortgage buyers’ clarifications on real estate commissions take a path similar to that of the Federal Housing Administration.

While newly constructed home mortgage applications rose both on a monthly and annual basis, the gains were slower than typical.

The bad times keep rolling for mortgage rates with the average conventional 30yr fixed rate back up to 7.5% according to our daily index.  This is quite a bit higher than the major weekly indices for a few reasons.  First, the weekly indices haven’t been updated for the current week yet.  When that changes, because they are averages, they’ll also include several days in the past where rates were a lot lower than they are today.  Slightly less important but still relevant is the fact that our index accounts for points by adjusting the rate itself. There are also reasons that our index could be lower than what any given borrower is seeing in the marketplace.  Chief among these would be that the scenario in question is not truly “top tier” (780+ FICO, 25% equity, etc.).  Finally, there are competitive differences between lenders even when all other variables are controlled.  All that having been said, the rate itself is only important in relation to this particular index.  In fact, any mortgage rate index is best used as a measure of how much things have moved as opposed to an outright rate target. On that note, things have moved quite a bit!  From longer term lows of 6.62 late last year, the jump to 7.5% takes us well over halfway back to the decades-long highs of 8.03 from October.  It’s too soon to know if that’s going to be a round trip journey, but we should know a lot more about that by the first week of May.  

Powell Confirms What The Bond Market Already Knew

Morning hours were frustrating for the bond market as we watched yields move to new multi-month highs for no obvious reason.  That said, the notion of a “re-pricing” sell-off doesn’t really require new obvious reasons (because the obvious reasons from the recent past created momentum that isn’t traded all in one go).  If we feel compelled to blame some data, Industrial Production (specifically, the upward revision to last month) is the only game in town). The better bet may be to infer some anxiety ahead of an afternoon speech from Powell confirmed that recent data shows a lack of progress on inflation.  He went so far as to say there’s uncertainty over whether there will even be a rate cut in 2024.  The absence of any major market reaction suggests traders weren’t too surprised.

Econ Data / Events

Housing Starts

1.321m vs 1.48m f’cast, 1.549m prev

Building Permits

1.458m vs 1.514m f’cast, 1.523m prev

Market Movement Recap

08:48 AM Modestly weaker overnight and little-changed after data.  MBS down an eighth.  10yr up 4bps at 4.645.

09:41 AM Additional weakness in the 9am hour.  No obvious catalyst.  MBS down almost 3/8ths.  10yr up 8 bps at 4.684.

11:15 AM Nice little bounce back but still weaker on the day.  MBS down 6 ticks (.19) and 10yr up 5bps at 4.652

02:08 PM Some volatility surrounding Powell, but mostly back to pre-Powell levels.  MBS down 9 ticks (-.28) and 10yr up 4.5bps at 4.649.

While builder confidence in the market for new residential construction improved in March, it remained flat in April and residential construction numbers showed a decline in momentum as well. Residential construction starts, which had surged in February, gave back all of those gains in March. The U.S. Census Bureau and the Department of Housing and Urban Development (HUD) report that construction began at a seasonally adjusted annual rate of 1.321 million housing units during the month, a decline of 14.7 percent from February’s level of 1.549 million units. Starts were 4.3 percent lower than their level in March 2023. Single-family starts fell 12.4 percent to an annual rate of 1.022 million and multifamily starts dived 20.8 percent to 290,000 units. The two categories were down 21.2 percent and 43.7 percent respectively year-over-year. Permits also declined. The annual rate was 4.3 percent lower at 1.458 million units compared to 1.523 million in February. Permits increased 1.5 percent on an annual basis. Single-family authorizations dropped from 1.032 million to 973,000, a 5.7 percent decline. This was still a 17.4 percent improvement from March of last year. Multifamily permits were unchanged at 433,000 units, down 22.1 percent year-over-year. Analysts polled by Econoday had forecast starts at 1,480 million and permits at 1.510 million, substantially overshooting both numbers. The National Association of Home Builders (NAHB) said the NAHB/Wells Fargo Housing Market Index (HMI) broke a four-month string of gains this month, remaining at the 51 level, unchanged from March, but still above the key breakeven point of 50.