2nd Straight Day of Losses. Blame Data or Stocks?

We already saw the end of the bond market’s 9 day winning streak with yesterday’s big mid-day reversal. Today makes it extra official with modestly weaker close.  That may not have been our destiny.  In fact, at 9:59AM ET, it looked like yields were happy to push back toward Tuesday’s lows, but things changed after the 10am ISM data. While it’s clear that ISM sent yields quickly higher, the rest of the day’s trading is a matter of debate or perspective. The key question is whether bonds would have lost as much ground as they did had it not been for a stock market recovery. Probably not, but the additional weakness attributable to stocks/sentiment was fairly small. Bottom line: for now, data still deserves more of the blame.

Econ Data / Events

ADP Employment

77k vs 140k f’cast, 186k prev

ISM Services

53.5 vs 52.6 f’cast, 52.8 prev
prices 62.6 vs 60.0
employment 53.9 vs 52.3

Market Movement Recap

08:51 AM Sideways to slightly weaker overnight, but bouncing back after ADP data. MBS up just over an eighth and 10yr down 4.1bps at 4.203

11:32 AM Additional losses after ISM data, but holding ground now.  MBS still up 1 tick (.03) and 10yr down 1.3bps at 4.232

02:09 PM New lows with MBS down 3 ticks (.09) and 10yr up 3.6bps at 4.28

Today involves a flight from Cancun to the West Coast. Maybe the news flow will cease for me in the six hours in the air, but the news flow impacting lenders, and government agencies involved with residential lending, continues. For example, the VA sent out a note about terminating 585 non-mission-critical or duplicative contracts. “These contracts represent less than one percent of the roughly 90,000 contracts VA currently has in place… The value of the contract cancellations totals about $1.8 billon. After accounting for the money already spent on the contracts, the cancellations will enable VA to redirect about $900 million back toward health care, benefits, and services for VA beneficiaries.” Elsewhere, the US Treasury Department has announced it will not enforce the Corporate Transparency Act, which requires businesses to disclose their beneficial owners. This decision comes after opposition from the Trump administration and legal challenges, citing concerns about the burden on low-risk entities. The Treasury plans to narrow the act’s scope to focus on foreign reporting companies. In compliance news, the image of Elon Musk with a chainsaw struck a nerve for attorney Brian Levy. In his latest Musings, Levy discusses what he sees happening at CFPB in light of current events and what may happen going forward. You can subscribe to get an email when Levy issues a new Musing for free! (Today’s podcast can be found here and sponsored by Floify. Floify is an easy-to-configure point-of-sale platform that allows each branch or loan officer to customize its look and feel to meet the needs of their lending team, homebuyers, and market. Hear an interview with BeSmartee’s Tim Nguyen on the impact of Trump’s second term on housing markets, the necessity of mobile mortgage solutions for lenders, and balancing automation and personal interaction in mortgage processes.)

Wednesday marks the return of market-moving economic data after Tuesday’s lull.  ADP Employment was up first and it came out much weaker than expected. Bonds never like to read too much into ADP, but it definitely had a measurable impact. Then at 10am, ISM Services data had a bigger impact, but in the opposite direction (because it was stronger than expected).  It’s also not lost on market watchers that the Services PMI sent an entirely different message than Monday’s Manufacturing PMI. All told, bonds are just barely pushing into weaker territory heading into the PM hours.

Metrics the influential government-related mortgage investor is adding appear to be in line with a broader move to examine the impact of serial loss mitigation.

The banking sector has stabilized significantly since the spring of 2023, but elevated interest rates have created lingering issues on bank balance sheets.

The Trump administration could announce a pathway for tariff relief on Mexican and Canadian goods covered by North America’s free trade agreement as soon as tomorrow, Commerce Secretary Howard Lutnick said Tuesday.

The credit score simulator only uses the Classic FICO scorecards available at each of the repositories, not the most up-to-date version, FICO 10T.

Easing regulations on the GSEs will likely drive elevated activity in non-QM if or when it occurs, leaders at the real estate investment trust also said.

Some argue that “March 4th” is the only date that is also a command (march forth), while others disagree and say that any date in March is also a command. Some things aren’t always clear. In a more important matter, U.S. Commerce Secretary Howard Lutnick said he would strip out government spending from the gross domestic product (GDP) report, but gave no indication how soon this change might happen, while dismissing fears of a possible recession. Treasury Secretary Scott Bessent is confident that inflation will reach the Federal Reserve’s 2 percent target. “I would expect that very quickly we will be down to the Fed’s 2 percent target,” Bessent said. “So, I’m expecting inflation to continue dropping over the year.” Investors are increasingly positioning against the dollar, citing signs of a cooling US economy and potential damage from President Donald Trump’s tariff plans. While the dollar recently surged following tariff announcements, market expectations for Federal Reserve rate cuts have grown, diminishing the dollar’s appeal. Meanwhile, lenders are continuing to look at technology, and today’s 2PM ET Advisory Angle with the STRATMOR Group focuses on AI: All Aboard the AI Train: A Practical Roadmap for Lenders. (Today’s podcast can be found here and sponsored by Floify. Floify is an easy-to-configure point-of-sale platform that allows each branch or loan officer to customize its look and feel to meet the needs of their lending team, homebuyers, and market. Hear an interview with HomeVision’s Vincent Chu on how AI-driven underwriting solutions can be both effective and safe for lenders.)

Although mortgage rates are based on bonds, and although bonds are constantly on the move throughout the day, mortgage lenders prefer to set the day’s rates only once. From there, if bonds make enough of a fuss, lenders will issue mid-day changes for better or worse. Today was a bit of a roller coaster, which is not surprising considering the extent to which stocks and bonds have been correlated recently. Stocks took a dive early in the day and bond yields (aka rates) followed. This allowed the average lender to set the lowest 30yr fixed mortgage rates since mid October. As the day progressed, stocks and bonds bounced back in the other direction and the move was big enough for most mortgage lenders to reprice back toward slightly higher rates.  The bad news is that we’re no longer at the lowest level in 4 months, but the good news is that we’re still a hair lower than yesterday (or any other day since December 8th.