New Month Selling Trumps ISM Data

It’s not that this morning’s ISM data failed to help the bond market. In fact, it accounted for the highest volume of the day and the lowest yields of the day. But those yields were seized as an opportunity for seller to do what they’d already showed up to do earlier in the day. Bottom line, we had a bit of excess strength at the end of last week due to month-end trading and now a bit of a reversal as the new month gets underway. Yields are still nearer the lower end of the recent range, which makes today’s modest correction all the less threatening. 

Econ Data / Events

S&P Manufacturing PMI

52.0 vs 52.3 f’cast

ISM Manufacturing

48.5 vs 49.5 f’cast, 48.7 prev

ISM Employment

46.8 vs 46.5 prev

ISM Prices

69.4 vs 70.2 f’cast

Market Movement Recap

10:03 AM Slightly weaker overnight, but recovering a bit after ISM data.  MBS down 2 ticks (.06) and 10yr up 2.1bps at 4.425

01:20 PM More weakness into PM hours.  MBS down 9 ticks (.28) and 10yr up almost 6bps at 4.463

05:09 PM Modest recovery into the close.  MBS down 5 ticks (.16) and 10yr up 4.2bps at 4.446

The ISM Manufacturing PMI has more potential than most economic reports to cause a reaction in the bond market, even if it isn’t perfectly consistent. As today’s only big ticket data, it was well positioned to set the tone this morning. While it may not be doing that in a resounding fashion, one could still argue that the weaker result is least helping bonds avoid additional weakness.
The net effect is that 10yr yields are pushing slightly lower from the 4.45% after bouncing there several times starting at 4:30am ET.  Anything between here and 4.39% should be considered “in limbo” as we wait for more data.

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Strongest Close of the Week After Well-Contained Month-End Volatility

There was always a reasonably high bar for today’s econ data to have a big impact. When it came out right in line with expectations this morning, that ship sailed. That left the month-end trading environment as the most likely source of inspiration.  While we can certainly see some evidence of month-end volatility, it played out in a narrow range.  More importantly, it resolved with bonds at the strongest levels of the week, even if by only a small margin.  

Econ Data / Events

Core PCE monthly

0.1 vs 0.1 f’cast, 0.0 prev

Core PCE Annual

2.5 vs 2.5 f’cast, 2.7 prev

Wholesale Inventories

0.0 vs 0.4 f’cast, 0.7 prev

Market Movement Recap

08:40 AM flat overnight and minimal reaction to data. MBS unchanged and 10yr up 1.5bps at 4.435

11:31 AM Steady near unchanged levels in MBS.  10yr down 1.2bps at 4.407

03:40 PM Best levels of the day, but minimal movement overall.  MBS up an eighth and 10yr down 2.1bps at 4.399

Both FHFA and Case Shiller released home price data this week with some mixed messages for the housing market. The first thing to remember about the major home price indices is that they run about 2 months behind–for the month of March in the present case. Another important consideration when looking at month-to-month movement is that the FHFA price index is seasonally adjusted whereas Case Shiller is not. The unadjusted Case Shiller data is easy to spot on the chart below due to its regular peaks and valleys at the same time of year, almost every year. The monthly data doesn’t look too troubling.  Both metrics are mostly operating in positive territory and the FHFA index isn’t any lower than it was last June.  Actually, the index itself is higher (since the chart measures month-over-month change). Rather, at -0.1% versus the previous month, FHFA’s index didn’t fall any faster than it did last June. Year over year data makes it easier to see longer-term trends.  It also means we don’t have to worry about separating out seasonal adjustments. The chart above shows that the pace of home price appreciation has been declining for about a year, but that it remains in positive territory.  In other words, prices are still rising year over year, just not as quickly.  But that’s not the full story. In addition to the unadjusted index, Case Shiller also has seasonally adjusted numbers and those show some more timely cause for concern.  Nationally, prices declined by 0.3%–the first negative reading since early 2023 and one of the biggest month over month shifts since 2022. The shift was fairly broad based across the 20 metro regions with only 6 recording price increases.

The Mortgage Bankers Association’s (MBA) weekly application survey continues to track closely with the more granular daily rate data from MND. Both showed mortgage rates climbing to new multi-month highs last week, and that upward momentum once again took a toll on refinance demand—even as purchase applications managed to grind higher. “Mortgage rates reached [their] highest level since January, following higher Treasury yields,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Additional market volatility has added to the increase, keeping the mortgage-Treasury spread wider than it was earlier this year. The 30-year fixed rate increased to 6.98 percent, its third consecutive weekly increase.” Kan noted that while refis dropped, purchases continue to outperform year-ago levels thanks in part to rising inventory. That aligns with the broader data: refinance applications fell 7 percent from the previous week, while purchase applications rose 3 percent. Compared to the same week one year ago, purchases are up 18 percent and refis are still running 37 percent ahead—though that year-over-year gap is narrowing. Mortgage Rate Summary From MBA’s data:

30yr Fixed: 6.98% (+0.06) | Points: 0.67 (−0.02)

Jumbo 30yr: 6.93% (−0.01) | Points: 0.69 (−0.03)

FHA: 6.66% (+0.06) | Points: 0.95 (−0.01)

15yr Fixed: 6.23% (+0.02) | Points: 0.67 (−0.05)

5/1 ARM: 6.22% (+0.06) | Points: 0.46 (+0.10)