Mortgage rates moved up somewhat abruptly today as the bond market lost more ground over the weekend.  Rates are driven primarily by bonds, but mortgage lenders tend to only update rates once per day unless the bond market is moving very quickly. With that in mind, bonds were losing ground on Friday afternoon, but not quickly enough or early enough for a majority of lenders to adjust pricing.  As such, lenders already had some catching up to do regardless of today’s bond market weakness.  The combination of the two factors (the “catch-up” and the new weakness) caused today’s spike to be bigger than average. That said, there weren’t any compelling news headlines or economic reports driving the weakness.  It would be better thought of as a hangover from Friday’s jobs report. As the week progresses, there will certainly be at least one major economic report with a proven track record of causing big reactions in rates: the Consumer Price Index (CPI) on Wednesday morning.  With the average lender already near the highest levels since February, a bad reaction to CPI could easily launch rates back to levels not seen since November.  On the other hand, if CPI manages to come in much lower than expected, rates would almost certainly drop.

Bonds began the new week with follow-through selling overseas.  Losses were steady and linear in both Asia and Europe.  It’s tempting to chalk up some of the weakness to a big beat in German industrial production data, but Treasury yields were already up to 4.44% by the time the data came out.  The first order of business for U.S. bond traders was to push back in a friendlier direction at 8am, but 10yr yields weren’t able to make it back into Friday’s range.  There are no major econ reports or scheduled events today.  The auction cycle begins tomorrow, but that will be a small supporting actor compared to Wednesday’s CPI.

Despite the recent losses in longer term bonds, the volatility has had little impact on Fed rate expectations (which experienced most of their recent spike in early February.

Since then, a June hike has only seen slim odds and the past 5 weeks have merely been a modest adjustment that makes those odds slightly slimmer.

“A fine is a tax for doing wrong. A tax is a fine for doing well.” April 15th is in a week, the traditional date when taxes are due. Time flies. Do you realize that we have seven more months until the election? Seven more months of headlines and gaffes, posturing, missteps, and election trivia (like no Republican has been elected to the White House by a majority of Americans since 1988). I’m glad residential lending continues to motor along, albeit at a very moderate pace. Politics can determine the regulatory environment, and this Wednesday’s L1 “Mortgage Matters: The Weekly Roundup at 11AM PT has Kathy Kraninger, former director of the CFPB from 2018 to 2021, now CEO of the Florida Bankers Association. (Found here after 8:30AM ET, this week’s podcasts are sponsored by PHH Mortgage. From subservicing to correspondent lending, MSR/co-issue transactions, portfolio retention, reverse mortgages, and commercial servicing, PHH has solutions for the entire mortgage lifecycle. Hear an interview with Figure Technology Solutions Jackie Frommer on disrupting the industry by leveraging proprietary technology and a deep partnership network.) Lender and Broker Products, Software, and Services A few hours from now, for the first time in nearly seven years, a total solar eclipse will cross the continental United States. Though the time between eclipses varies (it’ll be 2044 before the next one visits the contiguous 48 states) science assures us the choreography of our sun and moon is both cyclical and predictable. If only mortgage interest rates were as reliable! This week on Dark Matter Technologies’ ‘The Spotlight’ podcast, The Mortgage Collaborative President Melissa Langdale shares highlights from her co-op’s recent conference, including ways lenders are leveraging technology to make their processes and workforces more adaptable to our cyclical (but often unpredictable) market. Take 20 minutes and listen to the episode today!

Logan, whose remarks are closely watched by investors given her prior role managing the central bank’s asset portfolio at the New York Fed, said she’s increasingly concerned that inflation progress could stall out.

Also, Argyle, Two Harbors add mortgage tech experts to boards, Planet Home expands sales team and Calque names its CEO.

In a study posted weeks after it raised concerns about “junk fees,” the Consumer Financial Protection Bureau noted that the amount of borrowers paying discount points doubled from 2021 to 2023, with the increase larger among consumers with lower credit scores.

The $12.1 billion-asset DCU launched the loan platform in 2022, and has seen volume jump by close to $600 million from when talks began in 2019 to last year.

The Justice Department can reopen an antitrust probe into the National Association of Realtors, an appeals court ruled Friday, rejecting a bid by the real estate trade group to enforce a 2020 settlement with the Trump administration to close the case.

Bond Market Resilience Suggests More Focus on CPI

Up until the 3pm CME close, the bond market was having a surprisingly resilient day relative to the market moving data.  When NFP beats forecasts by 100k (today: 303k vs 200k f’cast), we tend to see big losses.  It was no surprise to see losses, but possibly surprising to see bonds almost back to pre-NFP levels 2 hours later.  Even after the 3pm sell-off, MBS are still in line with yesterday morning’s levels.  That’s better than we’d expect, based on the data and one of the only conclusions is that the market is more anxious to see next week’s CPI on Wednesday.

Econ Data / Events

Nonfarm Payrolls

303k vs 200k f’cast, 270k prev

Unemployment Rate

3.8 vs 3.9 f’cast, 3.9 prev

Earnings

0.3 vs 0.3 f’cast, 0.2 prev (revised up 0.1)

Market Movement Recap

09:36 AM Pretty stable after initial losses.  MBS down 7 ticks (.23) and 10yr up 6.5bps at 4.377.

10:55 AM Decent recovery, but it’s not continuing for now.  MBS down only 5 ticks (.16).  10yr up 5.5bps at 4.369 (briefly made it down to 4.337.

02:28 PM Fairly flat in the PM.  MBS down 6 ticks (.19).  10yr up 6bps at 4.372.

03:17 PM Weakness at 3pm CME close.  MBS down 10 ticks (.31) and 10yr up almost 8bps at 4.391.

Data dependent… That’s a phrase that is all too prevalent in financial markets and among members of the Federal Reserve.  It refers to the fact that economic data will guide the future path of interest rate decisions.   While rates always depend on data, the data outlook isn’t always as uncertain as it has been in the past few years.  At times, we’ve been waiting for inflation and job growth to stop surging.  At other times, we’ve been waiting for them to confirm a move in the other direction.  Either way, there are a few reports that financial markets watch more closely than others and today’s jobs report is one of the best examples. When job growth is higher than expected, the default reaction is for rates to move higher.  The bigger the “beat” (which refers to the actual job count versus the median forecast among multiple economists), the bigger the rate jump tends to be, on average.  With that in mind, today’s payroll count of 303k versus a median forecast of 200k was a big beat!   It was no surprise to see bonds lose ground and rates move higher, but the size of today’s rate increase is much more curious.  The average lender was only modestly higher in rate.  It’s curious, but it may not be incredibly surprising.  Again, it’s all about the data, and although Friday’s jobs report is definitely one of the two most important reports on any given month, next week’s Consumer Price Index (CPI) is bigger.  Today’s resilience could have a lot to do with the market waiting to see those results next Wednesday.