Data-Driven Weakness

It was a reasonably straightforward day for the bond market. Trading was flat overnight, then weaker after the 8:30am Jobless Claims data.  That report is hit and miss as a market mover, but a sub-200k print without any recent seasonal spike is certainly worth a few bps of weakness. Impacts were most notable in Fed Funds Rate expectations, which have now fully eliminated any possibility for a January cut and lowered the probability of a March cut from over 40% last week to under 20% today. In the bigger picture, longer-term rates remain squarely range-bound and MBS remain broken out the top of their comparable range thanks to GSE purchases.

Econ Data / Events

Continued Claims (Jan)/03

1,884K vs 1890K f’cast, 1914K prev

Jobless Claims (Jan)/10

198K vs 215K f’cast, 208K prev

NY Fed Manufacturing (Jan)

7.70 vs 1 f’cast, -3.90 prev

Philly Fed Business Index (Jan)

12.6 vs -2 f’cast, -10.2 prev

Market Movement Recap

08:31 AM First move is weaker after lower jobless claims. MBS down an eighth and 10yr up 2.5bps at 4.157

10:50 AM Lows of the day after rebounding into the 9:30am hour. MBS down 6 ticks (.19) and 10yr up 2.6bps at 4.159

01:48 PM MBS down 6 ticks (.19) and 10yr up 2.1bps at 4.153

03:15 PM Weakest levels for Treasuries with 10yr up 3.2bps at 4.164.  MBS still down 6 ticks (.19).

The weekly jobless claims data (not to be confused with the big monthly jobs report) is hit and miss when it comes to its propensity to move the bond market. On occasions where the results fall far from the forecast, we tend to see moderate reactions. Odds increase when the headline breaks under the psychological level of 200k.  With that, today’s 198k print is having a bit of a negative impact on bonds at 8:30am, taking the market from roughly unchanged overnight levels into slightly weaker territory. A stronger Philly Fed index offered no solace.

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The San Francisco-based banking giant reported solid gains in credit card and auto lending as credit remained in check and quarterly operating costs declined from a year ago.

The megabank’s net income declined by 13% during the fourth quarter as a result of a $1.2 billion pretax loss on sale related to the divestiture of its remaining operations in Russia.

The contract rate on a 30-year mortgage dropped 7 basis points to 6.18% in the week ended Jan. 9, according to Mortgage Bankers Association data released Wednesday.

Existing-home sales posted a notable year-end rebound in December, jumping 5.1% to a seasonally adjusted annual rate of 4.35 million , according to the National Association of Realtors (NAR). After adjusting for seasonal factors, December sales were the strongest in nearly three years, marking a broad-based improvement across all four regions. “2025 was another tough year for homebuyers, marked by record-high home prices and historically low home sales,” said NAR Chief Economist Lawrence Yun. “However, in the fourth quarter, conditions began improving, with lower mortgage rates and slower home price growth. December home sales, after adjusting for seasonal factors, were the strongest in nearly three years. The gains were broad-based, with all four major regions improving from the prior month.” Inventory tightened sharply during the month, reflecting typical winter seasonality. Total housing inventory fell to 1.18 million units , down 18.1% from November, though still 3.5% higher than a year ago. The months’ supply of unsold homes dropped to 3.3 months , down from 4.2 months in November. “Inventory levels remain tight,” Yun added. “With fewer sellers feeling eager to move, homeowners are taking their time deciding when to list or delist their homes. Similar to past years, more inventory is expected to come to market beginning in February.” Regional Breakdown (Sales and Prices, December 2025)

Trading levels in the bond market directly impact the rates that mortgage lenders can offer. This is why rates moved so much lower after last week’s news regarding planned purchases of $200bln in mortgage backed bonds.  But bonds aren’t the only input for rates, and those other inputs can make for days like today where bonds are noticeably better while mortgage rates refuse to follow. Those other inputs aren’t as easy to observe and quantify as the objective trading levels in the bond market, but in the current case, we can assume that at least some of the explanation has to do with mortgage lenders quickly becoming too busy to handle more volume. “Busy” isn’t necessarily the right word, but in this case, it’s a catch-all term for the side effects of rapidly originating a much higher volume of new loans. One aspect has to do with the flow of funding. Lenders don’t have unlimited cash to accept new lock commitments.  As they approach those limits, they will raise rates (or not lower them as much as their peers) to deter new business. A slightly more esoteric aspect has to do with deterring borrowers who recently acquired new mortgages from refinancing. Early payoffs (which mostly occur via refinancing when rates unexpectedly fall) cost lenders money because, on average, lenders pay more than the principal amount to originate a loan.  They then rely on earning interest to offset that expense. An early payoff means they won’t be able to collect that interest. As such, they have an incentive to avoid setting rates at low enough levels to entice recently minted mortgages from refi’ing. 

Some Asymmetric Risk When it Comes to Locking vs Floating

Bonds improved today mostly in response to heavy stock losses creating some safe haven buying demand. Data wasn’t heavily traded, but it didn’t do any harm. Producer Prices were mixed, with an upward revision in September being offset by lower-than-expected inflation in November. Retail Sales (also November data) beat at the headline, but the control group (excludes autos/gas/building materials) was in line with estimates and October’s number was revised lower. Despite the bond gains, mortgage rates were unchanged. This offers a potential clue about lenders being resistant to the notion of offering meaningful improvements from current levels in the short term.

Econ Data / Events

Core Producer Prices MM (Nov)

0.0% vs 0.2% f’cast

Core Producer Prices MM (Oct)

0.3% vs 0.1% prev

PPI YoY (Nov)

3% vs 2.7% f’cast

PPI YoY (Oct)

2.8% vs 2.7% prev

Producer Prices (Nov)

0.2% vs 0.2% f’cast, 0.1% prev

Producer Prices (Oct)

0.1% vs 0.3% prev

Retail Sales (Nov)

0.6% vs 0.4% f’cast, 0% prev

Retail Sales Control Group MoM (Nov)

0.4% vs 0.4% f’cast, 0.8% prev

Market Movement Recap

09:11 AM No major reaction to AM econ data. MBS up 1 tick (.03) and 10yr down 1.6bps at 4.165

11:23 AM Best levels of the day with MBS up 5 ticks (.16) and 10yr down 4.2bps at 4.138

01:58 PM Little changed from last update. MBS up 5 ticks (.16) and 10yr down 4.7bps at 4.133