Bonds Definitely Daring Jobs Report to Surge

10yr yields are now decisively below the levels seen BEFORE the last CPI report (the one that caused a jump from the 4.1’s to the 4.3’s).  This has been accomplished without any shockingly downbeat econ data, and without the market ramping up bets on a friendlier rate trajectory from the Fed.  In other words, it’s some combination of supply/demand technicals (Treasury auction composition and Fed QT tapering effects) and, more importantly, a legitimate belief that economy is not at risk of reigniting inflation concerns. On that note, Friday’s jobs report is in a position to undo much of the recent improvement if it makes a strong counterargument.  The recent data and the bond market response are essentially daring the jobs report to surge.  

Econ Data / Events

Jobless Claims 

217k vs 215k f’cast, 217k prev

Continued Claims

1906k vs 1889k f’cast, 1898k prev

Market Movement Recap

08:37 AM Stronger on data and ECB announcement.  10yr down 3.9bps at 4.069.  MBS up 5 ticks (.16) before accounting for roughly 2 ticks (.06) of illiquidity.

11:49 AM Gains erased in moderate, steady volume, and before Powell testimony.  MBS up only 2 ticks (.06) and 10yr unchanged at 4.108.

02:37 PM Weakest levels just before 1pm and holding modest gains since then.  10yr down half a bp at 4.104.  MBS up 3 ticks (.09).

03:30 PM Near best levels in MBS, up an eighth of a point.  10yr down 1.6bps at 4.092.  Shorter-term Treasuries are doing even better.

Apart from Monday, which had no meaningful econ data, today was the best candidate for an uneventful day on what is otherwise an important data week.  The scheduled econ data was light and of lesser importance compared to surrounding days.  Powell’s congressional testimony was on “day 2” (thus lowering surprise potential).  The only real wildcard risk was the ECB announcement, mostly due to any forward guidance clues in the press conference.  While bonds did enjoy a brief, positive reaction to ECB and 8:30am econ data, it was erased fairly quickly, and well before Powell began speaking.  That means today is fulfilling its “placeholder” destiny perfectly so far.

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Reverse mortgage lender Finance of America posted a quarterly profit to end 2023, as it completed post-merger integrations and faced warnings of delisting from the New York Stock Exchange.

The Securities and Exchange Commission finalized a pared-down version of rules governing climate-risk disclosure by public companies first proposed in March 2022. Experts say even the weakened rule will likely face challenges in Congress and the courtroom.

Former Trump administration officials Steven Mnuchin and Joseph Otting are headlining an investment group that’s seeking to rescue the troubled Long Island lender. Otting is expected to serve as CEO, and Mnuchin will have a board seat.

In congressional testimony, the Federal Reserve chair said the Board of Governors is processing the comments on its capital reform proposal. Putting forth an entirely new proposal is “very plausible.”

Argyle, which helps lenders verify income and employment data, completed a $30 million funding round led by a Rockefeller Capital Management innovation fund, bringing its funding since the firm’s formation to more than $100 million.

Uneventful Gains Despite Apparent Market Movers

It was an interesting day for the bond market.  Yields dropped to the lowest levels in more than 3 weeks amid several apparently valid motivations.  But upon closer inspection, most of the improvement happened far enough away from those motivations to give them much credit.  On a day with JOLTS (job openings data) and a Powell testimony, the most obvious market mover was a series of headlines and trading halts surrounding NYCB, although those ultimately canceled each other out.  We’re left with modest but important improvement ahead of Thursday’s ECB announcement and Friday’s jobs report.

Econ Data / Events

ADP Employment

140k vs 150k f’cast, 107k prev

Job Openings

8.863m vs 8.9m f’cast, 9.026m prev

Market Movement Recap

09:00 AM Sideways to slightly weaker overnight, but gains kicked in at 7am.  10yr down 2.8bps at 4.123.  MBS up an eighth.  ADP and Powell’s prepared remarks doing no damage.

10:01 AM Minimal reaction to JOLTS.  10yr down 4.7bps at 4.104.  MBS up 9 ticks (.28).

12:31 PM Gains on NYCB circuit breaker at 11:53am ET.  MBS up 10 ticks (.31).  10yr down 6bps at 4.092

02:50 PM Some volatility surrounding NYCB headlines.  MBS off highs, up a quarter point on the day.  10yr down 4.3bps at 4.108.

Conventional 30yr fixed mortgage rates in the high 6 percent range have been available months now, and that didn’t change in the past few weeks when rates moved up from longer-term lows.  But the high 6 percent range was the exception during this time. As of today, the average top tier 30yr fixed rate is once again under 7% (6.97% to be precise).  That means many borrowers will be seeing quotes of 7 to 7.125% for top tier scenarios while some will see 6.875%.  As always, keep in mind that a top tier scenario assumes 780+ credit scores and at least 20% down in the case of purchases. The factors underlying the mortgage rate recovery are the same as the factors that drove rates higher 3 weeks ago: economic data. Back on February 13th, higher inflation data caused rates to spike.  There wasn’t much by way of meaningful data in the 2 weeks that followed, but since last Thursday, the data has been relatively rate-friendly.  It’s taken the combination of multiple reports to undo the damage done by a single dose of inflation data on the 13th, but on Friday, we’ll get a report that is just as much of a potential market mover. The catch regarding Friday’s big jobs report is that there’s no way to know if it will live up to its market moving potential NOR if it will be bad or good for rates.