The bond market and interest rates have arrived at the first full week of the new year almost exactly where they left off before the X-mas/New Year holiday weeks.  There was a small amount of underlying volatility in bonds today, but not enough to translate into volatility for mortgage rates.  This kept the average lender near 7.125% for a top tier conventional 30yr fixed rate. Although the past 2 weeks have been uneventful for rates, the next 2 weeks will be heavily influenced by incoming economic data.  There are several honorable mentions over the next few days before getting to this week’s headliner on Friday: the jobs report.  The data between now and Friday is certainly capable of causing movement in either direction, but the jobs report is capable of causing much MORE movement.  In all cases, bigger volatility requires a bigger deviation from the market’s expectations. Where do expectations come from? Hundreds of economists/analysts submit or publish forecasts for most of the regularly-scheduled economic data.  The median of those forecasts is then published as a consensus–effectively THE forecast.  In general, if the data suggests the economy is weaker or inflation is lower versus the forecast, it’s good for rates.  

Small Scale Volatility as Bonds Wait For Jobs Report

Bonds lost ground this morning despite a weaker S&P PMI headline.  While there were some mitigating factors beyond the headline, we could just as easily conclude that traders are erring on the side of caution heading into a week of Treasury auction supply with another big jobs report on Friday–all while being forced to wait an unknown amount of time to find out where the rubber meets the road on fiscal policies that could further affect the outlook for the economy, inflation, and Treasury issuance.  All told, today’s volatility was mild at best and we didn’t learn anything new about the bigger picture.

Econ Data / Events

S&P Services PMI

56.8 vs 58.5 f’cast

Market Movement Recap

09:47 AM Slightly stronger overnight but backtracking in first 2 hours.  MBS down 2 ticks (.06) and 10yr up 2.4bps at 4.622

10:37 AM Weakest levels.  MBS down more than a quarter from highs and 5 ticks (.16) on the day.  10yr up 3.8bps at 4.636

02:04 PM modest recovery into the noon hour, but falling a bit since then.  MBS down 2 ticks (.06) and  10yr up 2.9bps at 4.627

04:11 PM Calming down in after hours trading.  MBS down only 1 tick (.03) and 10yr yields up 1.2bps at 4.61.

Treasuries made modest gains in overseas trading, but yields are heading higher during domestic hours.  There are two things working against us this morning.  The first is more of a general backdrop created by Treasury auction supply. It’s rare to see bonds take a bullish lead-off ahead of an auction cycle these days.  If anything, it’s more common to see more selling at first and then some relief after the Wednesday or Thursday auction. The second headwind is the absence of “help” from this morning’s econ data.  The “miss” in the S&P Services PMI is a bit misleading.  In addition to being a small miss, it left PMI at the highest levels since early 2022. The business confidence component is at an 18 month high and the employment component rose for the first time in 5 months.  In that light, it’s no surprise to see bonds shy away from a favorable reaction. 

The meals, which were more promotional than sales-oriented, shouldn’t make originators exempt from receiving overtime pay, an attorney argued.

A year that saw businesses express growing interest in the segment ended with a more subdued outlook due to interest rate trends, according to a new report.

Keefe, Bruyette & Woods expects a better year for originations than either Fannie Mae or the Mortgage Bankers Association, although volume will remain below the norm.

Freddie Mac shares rose to $4.14 at 12:30 p.m. in New York Friday, Fannie Mae’s stock climbed to about $4.23, each up 22% from the previous day’s close.

The share of waivers submitted with purchase mortgages sold to the government-sponsored enterprises accelerated just prior to a change that will make more loans eligible.

Holidays Came and Went Without any Bond Market Fanfare

2 weeks ago today, we assumed the bond market would leave the office for the holidays and reassess during the first full week of 2025.  For the most part, that’s how things went down.  10yr yields could have ended the week anywhere between 4.5 and 4.6 depending on this morning’s data.  The higher levels got the nod due to slightly stronger ISM reading. The end. Bigger movement was always most likely to be on hold until and unless the early January data makes a strong, unified case for or against the economy. The early January data in question starts to roll in throughout the week, but as always, the biggest ticket is Friday’s jobs report.

Econ Data / Events

ISM Manufacturing

49.3 vs 48.4 f’cast, 48.4 prev

ISM Prices

52.5 vs 51.7 f’cast, 48.4 prev

Market Movement Recap

09:29 AM Sideways to slightly stronger overnight, but giving up some gains early.  MBS up 1 tick (.03) and 10yr down 0.2bps at 4.561

10:07 AM Slightly weaker after ISM data.  MBS down 1 tick (.03) and 10yr up 1bp at 4.572

02:25 PM treading water at weakest levels.  MBS down 3 ticks (.09) and 10yr up 2.3bps at 4.587

Today’s ISM Manufacturing report was the only top tier economic data this week.  While we wouldn’t say it was “strong” by any means, it wasn’t weak either.  More importantly, it was higher than the previous reading and the median forecast, both for the headline PMI and the “prices paid” component.  That’s a decent enough result to prevent bonds from getting any crazy ideas about rallying back toward the week’s best levels.  Trading levels went from modestly stronger to modestly weaker after the data.