“Congratulations to the Kardashians on their 20th season. And to me for never having watched a single minute of a single episode.” There are certainly more important things in life, like the rising cost of homeowner’s insurance, and the changing climate. Manmade or natural, it doesn’t matter: If an insurance company won’t insure the area, if an investor worsens your price, or flat out refuses to buy a loan on a property prone to disasters, regardless of root cause, you and your borrower are impacted. The SEC will stay the implementation of its new climate disclosure rule as the agency pushes to consolidate the legal challenges that have already been filed attempting to overturn it. While lawsuits from more than 20 Republican-led states and various business groups argue that the disclosure requirements are beyond the SEC’s legal authority, the regulator still believes the rule is within its power to order. The SEC recently weakened the rule, including requirements for some companies to report Scope 3 emissions from their supply chains and customers using their products. (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 with Experian’s Joy Mina on misconceptions associated with verification and advances in reporting technology.)

Yesterday’s commentary pulled an occasionally used phrase off the shelf by referring to recent weakness as a “repricing” in the broader bond market.  This is an intentional migration from one rate reality to another.  These episodes happen from time to time and are usually driven by data or a major change in policy.  The most important thing to understand about them is that they have a certain amount of self-sustaining momentum until buyers can’t help but be enticed to scoop up higher yields.  With a rather sharp pace of recent losses and 10yr already hitting the 4.65% technical level, is it time for enticement?

There’s nothing magical about 4.65. It was just the next highest level after 4.57 that had offered support in the past (in Nov 2023). This isn’t to say that traders can’t be motivated by technical levels or that other, more complex technical indicators couldn’t also be motivating some buying demand. 
Higher rates will increasingly raise these questions, but they will ultimately only be answered by data and the Fed’s policy response.  To that end, Powell will have a chance to address the most recent CPI and Retail Sales numbers in a speech this afternoon.

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In 2023, there were multiple examples of mortgage rates moving up by roughly half a percent in a relatively short amount of time (1-3 weeks).  Since the big shift in November, we’ve only seen one similar example and it was more of a technicality (a sharp drop in rates followed by a correction in early Feb), until today. Rates were already on the run toward higher levels at a fairly abrupt pace last week.  The culprit was economic data, starting with the strong jobs report on April 5th and the far more troubling inflation data last Wednesday. Today’s Retail Sales report was the icing on this unpleasant data cake. To be clear, when it comes to Retail Sales, the data is actually very pleasant for the economy.  Unfortunately, what’s good for economic growth is often bad for rates and that’s doubly true at the moment when the market is waiting for more concrete evidence that the Fed’s tight monetary policy is restricting growth. In other, simpler words, this data does not line up with the notion of Fed rate cuts in the near term.  It also had an immediate negative impact on the rest of the bond market, including the bonds that most directly dictate mortgage rates. The average lender is now back into the mid 7s for a top tier, conventional 30yr fixed scenario.

Data-Driven Repricing Continues

There are two kinds of “repricing” to consider when you’re a mortgage market professional: the intraday change in rates among lenders when market move enough and the broader bond market shifting gears in response to some relatively rapid realization.  Today’s trading session spoke more to the latter, adding emphasis to a repricing that’s been underway for the entire month of April.  If there’s one culprit, it’s economic data.  The jobs report and CPI are the two obvious all stars, but today’s Retail Sales report made a strong case to be on the starting line up.  

Econ Data / Events

Retail Sales

.07 vs 0.3 f’cast
last month revised up to 0.9 from 0.6

NY Fed Manufacturing

-14.3 vs -9.0 f’cast, -20.9 prev

Market Movement Recap

08:37 AM Moderately weaker overnight with additional selling after Retail Sales data.  MBS down 10 ticks (.31) and 10yr up 8.4bps at 4.614

10:49 AM Additional weakness after several block trades and geopolitical headlines.  10yr up 10bps at 4.627.  MBS down almost half a point.

12:37 PM Sideways to slightly stronger since hitting the weakest levels earlier.  MBS down 3/8ths.  10yr at 4.630, off highs of 4.66+

03:27 PM Still flat at weaker levels.  MBS down 14 ticks (.44) and 10yr at 4.627.

The bond market sold off steadily and gradually overnight session despite news of escalation between Iran and Israel.  Ever since the start of the war in Ukraine, we’ve seen a different reaction function than we’re used to when it comes to geopolitical turmoil.  Inflation is the x factor as armed conflict can either suggest supply chain issues or imply increased government spending (which in turn implies Treasury issuance and incremental bond market weakness.  10yr yields were already up 5+ bps by the open.  After this morning’s strong Retail Sales data and additional headlines, the losses have more than doubled.

It is interesting to consider the role of oil prices vs bond yields when it comes to assessing geopolitical headlines that involve oil producing countries.  Correlated movement in bonds and oil can help confirm geopolitical motivations, but not always in a logical way.  In the chart below, volatility in oil and bonds does seem to correlate with geopolitical headlines, but note that the 2nd spike in oil only restored levels from earlier in the morning.

Zooming out to a slightly wider time horizon, we can see that oil prices haven’t been moving much recently AND that most of the movement has been positive correlated with yields (as opposed to today’s apparent inverse correlation).