Calm Day to End A Calm Week

While Friday itself may not have resulted in a rally for the broader bond market, it was nonetheless just as calm as any other day this week in terms of volatility. That’s a bit more impressive considering it was the only day with big-ticket econ data. Overall, the week was marked by slow, steady gains for no particular reason. With that, the entirety of August, post-jobs-report did exactly what it was supposed to do. Specifically, it held a narrow enough range to avoid challenging the range set by the last jobs report day. The upcoming week–while shorter than normal due to the Labor Day holiday–is infinitely more capable of producing bond market volatility. Even the supporting actors are arguably heavy hitters in terms of econ data. Friday’s jobs report speaks for itself. Bottom line: additional labor market weakness could easily help bonds break new ground at lower yields while unexpected resilience could firmly reinforce recent floors.

Econ Data / Events

Core PCE (m/m) (Jul)

0.3% vs 0.3% f’cast, 0.3% prev

Core PCE Inflation (y/y) (Jul)

2.9% vs 2.9% f’cast, 2.8% prev

Inflation-Adjusted Spending (Consumption) (Jul)

0.5% vs 0.5% f’cast, 0.3% prev

Personal Income (Jul)

0.4% vs 0.4% f’cast, 0.3% prev

Wholesale inventories mm (Jul)

0.2% vs 0.2% f’cast, 0.1% prev

Chicago PMI (Aug)

41.5 vs 46 f’cast, 47.1 prev

Consumer Sentiment (Aug)

58.2 vs 58.6 f’cast, 61.7 prev

Sentiment: 1y Inflation (Aug)

4.8% vs 4.9% f’cast, 4.5% prev

Sentiment: 5y Inflation (Aug)

3.5% vs 3.9% f’cast, 3.4% prev

Market Movement Recap

08:34 AM Minimal movement after PCE data.  MBS are down 2 ticks (.06) and 10yr yields are up 1.4bps at 4.22.

01:03 PM Slightly stronger heading into PM.  MBS down only 1 tick (.03) and 10yr up 1.9bps at 4.224

“The hardness of the butter is proportional to the softness of the bread.” Proportionality is important, whether in a restaurant or in a lender watching adjustable-rate loans (where the market favors credit unions and banks). With short-term rates dropping relative to long-term rates, the adjustable-rate mortgage market share has increased. Lenders that I have spoken with (mostly bank and credit union folks) say that the vast majority of ARM applications are 5-year, 7-year, and 10-year products, which, for anyone who’s been in the business for 25 years, is a shift from the mid-2000s when we had various types of 1-year ARMs, along with 3/1 and 5/1 products. For potential borrowers who have watched their landlords change rental rates, it may seem like their monthly payments are adjustable. But unfortunately for lenders, renting is cheaper than buying in 49 out of 50 MSAs with an average savings of $908 a month. Pittsburgh was the only MSA where buying is cheaper. The worst MSA? Austin, where it costs $1,467 to rent a starter home and $3,150 to buy one. More evidence of an unaffordable housing market: the homeownership rate has fallen to the lowest level since 2019. The drop affected all age groups, with the 45-54 age group seeing the largest percentage decline. (Today’s podcast can be found here and this week’s is sponsored by Arrive Home. Arrive Home helps mortgage lenders connect creditworthy buyers with down payment assistance and affordable homeownership solutions, offering tools that empower lenders and uplift communities. Hear an interview with MBA’s David Upbin and Arch MI’s Kevin Popoli on the Mortgage Banking Bound program and how it is preparing college students for careers in mortgage banking.)

There are two big picture inflation reports in US that address consumer prices: CPI and PCE. Of the two, PCE is broader and more highly regarded by policymakers. The downside is that it comes out about 2 weeks later for the same month of price data. PCE is also easier to forecast due to other inflation data being out earlier in the month. As such, it’s less common to see big deviations from forecasts and today was no exception with all monthly and annual numbers perfectly hitting expectations. Unsurprisingly, bonds haven’t really changed from opening levels.

One of the only interesting developments (debatably, perhaps) is that the “supercore” reading (core services inflation excluding housing) was 0.1% lower in PCE versus the figures reported by bloomberg that were extrapolated from CPI 2 weeks ago. Supercore is still slightly elevated and has been trending higher, but 0.390 is a lot better than 0.481 (reported with CPI) when it comes to inflation staying out of the way of a Fed rate cut.

National Mortgage News’ Digital Mortgage Conference is gearing up for its 10th edition; here’s a look back through the years from the previous nine shows.

The 30-year fixed rate mortgage fell 2 basis points this week, Freddie Mac said, but other sources like Zillow and Lender Price reported larger drops.

An index of contract signings slipped 0.4% last month to 71.7, around where it’s lingered for much of the year, according to National Association of Realtors data released Thursday.

The median monthly home loan payment fell $45 in July from June, although some of those payments are more expensive compared to the same time last year.

The incident appears connected to recent social engineering campaigns, including attacks tied to Salesforce.

Generally Exciting, But Specifically Boring

Heading into the present week, it was incredibly unlikely that we’d see any exciting volatility in the bond market this week.  At the very least, we knew that it was really only Friday’s PCE data that carried any notable volatility potential. With 4 days down, the “boring” narrative has prevailed.  Like every other day this week, Thursday saw mild movement and low volatility with very little connection between events and market movement. But as it happens, the mild movements have all been in the same direction this week, and they’re starting to add up. To wit: 10yr yields just hit their lowest 3pm CME close since August 4th and the 2nd lowest since April. MBS are doing even better and mortgage rates reflect that. 

Econ Data / Events

Jobless Claims 

229.0K vs 230K f’cast, 235K prev

Continued Claims 

1954.0K vs 1970K f’cast, 1972K prev

Core PCE Prices QoQ FinalQ2

2.5% vs 2.6% f’cast, 3.5% prev

Corporate profitsQ2

2.0% vs -3.3% prev

GDPQ2

3.3% vs 3.1% f’cast, -0.5% prev

GDP deflatorQ2

2.% vs 2% f’cast, 3.8% prev

GDP Final SalesQ2

6.8% vs 6.3% f’cast, -3.1% prev

Market Movement Recap

09:29 AM Flat overnight and little changed since data.  MBS down 1 tick (.03) and 10yr up less than half a bp at 4.24

12:32 PM Best levels of the day heading into 7yr auction. 10yr down 2.2bps at 4.213.  MBS up 1 tick (.03).

03:37 PM Mostly flat in PM hours.  MBS still up 1 tick (.03) and 10yr down 2.2bps at 4.213

“Remember how when you were little you could just rip off your diaper and run around naked and everyone thought it was so cute and funny? Anyway, I need bail money.” Money makes the world go ‘round. Fed President Lisa Cook was fired earlier this week based on claims of occupancy fraud, and while I agree with many of you that this Commentary has been writing too much about politics lately, politics and the mortgage industry are certainly intertwined. There’s a nearly identical occupancy story coming out of Texas. “Texas Attorney General Ken Paxton and his wife, state Sen. Angela Paxton, are longtime owners of a $1.5 million house in a gated community in McKinney. In 2015, they snapped up a second home in Austin. Then another. The problem: Mortgages signed by the Paxtons contained inaccurate statements declaring that each of those three houses was their primary residence, enabling the now-estranged couple to improperly lock in low interest rates…” Of course, things should be equal in the eyes of the law, right? I’d like to believe enforcing it isn’t a political thing. Maybe things have gotten too political, or maybe people like being pissed off these days more than normal? Just ask a couple of former Phoenix Suns minority owners. A pair of them who were holdovers from the previous ownership group are suing the team, alleging that current Suns owner, and head of UWM, Mat Ishbia has refused access to internal records. It’s the sixth lawsuit against the team since November 2024. I think we had a national election around that time. (Today’s podcast can be found here and this week’s is sponsored by Arrive Home. Arrive Home helps mortgage lenders connect creditworthy buyers with down payment assistance and affordable homeownership solutions, offering tools that empower lenders and uplift communities. Hear an interview with Trueworks Victor Kabdebon on data from recent homebuyer surveys pertaining to products and lender decisions.)