The momentum created in the fourth quarter is continuing during the first months of this year and is likely to continue throughout 2024, according to Dv01’s Vadim Verkhoglyad.

All in All a Pretty Logical Week

It seems weird to consider, but Friday’s trading–and indeed, the week’s trading as a whole–was fairly logical.  By the end of the previous week, econ data provided evidence that rates didn’t need to go any higher.  This week’s data didn’t exactly confirm that in an overly forceful way, but it absolutely didn’t offer any arguments.  Friday’s jobs report was the latest and most interesting example with revisions, unemployment, and wages doing more than enough to offset the higher headline compared to expectations.  After today, the past two months of NFP readings make a lot more sense.  It also makes sense that bonds rallied modestly.  200k+ is still strong.  Sub 4% unemployment is still low, but it’s next week’s CPI that can truly determine just how quickly we can forget February’s unfriendly data.

Econ Data / Events

Nonfarm Payrolls

275k vs 200k f’cast
last month revised down to 229k from 353k

Unemployment Rate

3.9 vs 3.7 f’cast, 3.7 prev

Wages 

0.1 vs 0.3 f’cast, 0.5 prev

Market Movement Recap

09:13 AM 2-way trading after mixed jobs report.  Bonds were mostly stronger until just now, with 10yr yields back to ‘unchanged’ at 4.088.  MBS are still up an eighth, but were up by more than a quarter point at their best levels.

11:00 AM Giving back some of the initial, choppy improvement.  MBS still up 2 ticks (.06) and 10yr still just barely positive at 4.085

01:46 PM Stable and flat.  MBS up 2 ticks (.06) and 10yr down 0.3bps at 4.085.

It was a hotly anticipated week for interest rates due to the arrival of the first batch of big ticket economic data since the Inflation report that came out on February 13th. This week’s data was much more friendly, but next week’s data is even more important. The first major report of the week was the Non-Manufacturing index from ISM (or ISM Services).  While this may not be a household name report, it frequently moves markets.  In general, lower index values are better for rates, and that’s what we got.  Even though the drop wasn’t very big, it fits inside the cooling trend of the past two years. The ISM Services data includes other components as well.  One closely watched component is the “prices paid” index which speaks to inflation trends.  As always, lower inflation is good for rates and vice versa.  With that in mind, this week’s report was a relief because it undid a potentially alarming spike seen in the last installment.  The following morning, another big ticket report corroborated the notion of economic cooling.  The Job Openings survey measures the labor market from a slightly different angle than the big jobs report that headlined the week, but it has increasingly caused volatility in rates over the past few years.  This week’s release didn’t have a huge impact, but it didn’t have a bad impact either! Another component of the job openings data known as the “quits” rate measures the amount of workers voluntarily ending their own employment.  It’s regarded as a good indicator of a shift in economic momentum because people are less likely to quit their jobs if the economy is contracting.

Today’s jobs report has proven to be one of the most extreme examples of competing narratives in the past year or so.  The headline number wasn’t too extreme compared to the forecast, but at 275k vs 200k, certainly the sort of thing that would hurt rates.  Revisions told a completely different story with last month falling to 229k from 353k.  The unemployment rate (3.9 vs 3.7) and wages (0.1 vs 0.3) added to the confusion. Bonds agreed with the morning’s trading having been very “2-way” so far.

If anything, this places even more emphasis on next week’s CPI to cast a deciding vote on whether rates should continue rallying into the following week’s Fed announcement, or if the last week and a half of improvement is a sufficient correction to the early-2024 rate spike.  Either way, be sure to note that the pace of the rally over the past week and a half is decelerating noticeably.  

“Horses have lower divorce rates. It’s because they are in stable relationships.” Here on the Central Coast of California, there are plenty of horses but few disasters, wars, or big insurance claims. But in Ukraine there have been 566,000 property damage reports, and the government has launched eRecovery, an app based on the government’s digital platform Diia that may provide a template for future recovery efforts worldwide. It has already processed 83,000 compensation claims for damaged or destroyed property and has paid out over 45,000 claims, with 566,000 property damage reports filed through December. Volume isn’t a disaster for lenders, but it isn’t stellar either, and today’s TMC Rundown features Femi Ayi, VP Branching Operations at Revolution Mortgage, discusses using technology to make some tough choices. Curinos tells us that February 2024 funded mortgage volume increased 5 percent YoY and increased 14 percent MoM. The average 30-year conforming retail funded rate in February 2024 was 6.79, a shade lower than January but 62 basis points higher than the same month last year. (Found here, this week’s podcast is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades. Hear an interview with the STRATMOR Group’s Jim Cameron on Maslow’s hierarchy of needs as it pertains to mortgage companies.) Lender Broker Services, Products, and Software

The move follows Freddie Mac’s expanded use of bank account data and brings to full fruition an effort both enterprises have been engaged in since 2017.

The title proposal is part of a broader housing cost reduction proposal being discussed in the State of the Union speech.

Fannie Mae’s home price sentiment index grew to 72.8 in February, up 2.1 points from the month prior.

The New York bank has deployed generative artificial intelligence from Greenlite to help analysts do enhanced due diligence on clients with higher risk ratings.

During a contentious exchange on his second day of congressional testimony this week, the Federal Reserve chair drew a line between the central bank’s response to last year’s bank failures and its current capital proposal.