Breaking Down The Big Non-Fed-Related Rally

As intraday charts give way to daily charts in the coming weeks, it will be all too easy to look back on today’s calendar and conclude that it could only have been the Fed announcement that was capable of motivating a 10+bp rally in Treasuries and a half point gain in MBS.  As we here in the past know, that rally was largely already in place ahead of the Fed announcement. We can’t chalk it up to the high continued claims number, though that may have helped. The simplest theory is that there are “dip buyers” in bonds now that the election is over.  It’s not a bad one, but we could just as easily say that a glacial drift toward higher rates got ahead of itself yesterday and fell back in line with the trend today.  Either way, MBS and mortgage rates have outperformed the move in Treasuries, and there’s at least a moment of hope for optimists to imagine an inflection point.

Econ Data / Events

Jobless Claims

221k vs 221k f’cast, 218k prev

Continued Claims

1892k vs 1880k f’cast, 1853k prev

Market Movement Recap

08:40 AM Slightly stronger overnight and little-changed after jobless claims data.  MBS are up a quarter point and 10yr yields are down 1.6bps at 4.415

12:35 PM Additional gains all morning.  MBS at best levels, up half a point. 10yr down 9bps at 4.34

02:27 PM unchanged to a hair weaker after Fed announcement.  MBS up 15 ticks (.27) and 10yr down 7.6bps at 4.356

03:11 PM 2 way trading after Powell press conference, but mostly stronger.  MBS up more than half a point and 10yr down 11.3bps at 4.318

Experts anticipate a pullback in regulatory action and some potential pain for home builders but long-term interest rate impacts are a major question mark.

President Trump initiated changes at the Consumer Financial Protection Bureau in his first term, and the industry’s frustration with the bureau has grown since he left office. But how far a second Trump administration can or will go depends on factors outside the president’s control.

Value adjustments to Guild’s MSRs totaled a loss of $145.8 million, the nonbanks third quarter earnings show.

The company plans to increase investments in its proprietary products as well as marketing initiatives with expectations of originations growth next year.

Experts anticipate that Trump’s victory and expected shifts in regulatory leadership will delay finalizing Biden-era capital rules for large banks, with new officials likely favoring a less stringent Basel III framework and softer capital requirements.

Does The Fed Still Matter?

Bonds sold off overnight as the reality of Trump’s victory became apparent.  Traders more or less nailed the trading levels right out of the gate.  This didn’t leave much room for volatility during domestic hours (10yr yields started the day around 4.45 and are ending around 4.43).  Given the all-consuming focus on the election, it would be easy to overlook the fact that Thursday brings the next Fed announcement (it would normally be on a Wednesday, but some smart person pushed it back a day). Does that even matter in this environment?  Frankly, probably not too much.  At the very least, the market is 100% prepared for a 0.25% rate cut.  The statement and Powell will both likely acknowledge improvements in economic data–especially the big shift in NFP–while at the same time reminding the market that the Fed is playing a long game and not to read too much into one month of data.

Econ Data / Events

S&P Services PMI

55.0 vs 55.3 f’cast, 55.2 prev

ISM Services

56.0 vs 53.8 f’cast, 54.9 prev
employment 54.0 vs 48.0
Prices 58.1 vs 58.0

Market Movement Recap

08:11 AM Sharply weaker following Trump victory.  MBS down 5/8ths of a point.  10yr up 16bps at 4.44

01:06 PM Recovering a bit, both before and after 30yr auction.  MBS down half a point and 10yr up 13.6bps at 4.418

02:27 PM Giving up some ground again.  MBS down 17 ticks (.53) and 10yr up 16bps at 4.442

04:11 PM Leveling off into the last hour.  MBS down 15 ticks (.47) and 10yr up 15bps at 4.434

Heading into the election, we knew the bond market was losing ground in concert with improving odds of a Trump victory and red sweep.  After being surprised in 2016, markets were determined to bake in as much of the expected outcome as possible. The seemingly massive overnight sell-off in bonds means that markets have done exactly that.  10yr yields are only up 19bps, and while that may sound big, it’s very much on the low end of the spectrum of potential election reactions. If there’s a reason, it’s that the red sweep has yet to be decided due to a neck and neck forecast for control of the House. 

I went to a Vikings game with a friend and decided I wanted a drink. I wanted the big soda pop, but when I saw the price, I decided… A Minnesota will do. Here in Minneapolis, one topic of conversation is the speed at which regulators seem to be acting, thinking things will change in January. Attorney Brian Levy wrote, “The CFPB (and the Justice Department) refuse to acknowledge that lender discrimination does not explain housing disparities and continue to pursue these modern-day redlining claims unabated. But, in my view, the Townstone settlement a few weeks ago is an unequivocal recognition by CFPB that its overzealous fair lending interpretations are unlikely to survive judicial challenge.[13] In fact, it’s possible we may mark this settlement as the beginning of the end of fair lending enforcement for the mortgage industry as we know it.” An industry vet recently reminded me that, “Berger v. United States, the 1935 U.S. Supreme Court case requiring that, while a prosecutor ‘may strike hard blows, he is not at liberty to strike foul ones. It is as much his duty to refrain from improper methods calculated to produce a wrongful conviction as it is to use every legitimate means to bring about a just one.’” (Today’s podcast can be found here, and this week’s is Sponsored by Calque. Partner with Calque to offer better loan solutions. Scale your business with a partner that puts your brand first and empower your clients to buy before they sell. Hear an interview with Cornerstone First Mortgage’s Eric Rotner and Calque’s Chandra Srivastava on creative new products that are helping alleviate the lack of housing supply.)

In today’s weekly mortgage application survey from the MBA, the average 30yr fixed mortgage rate only rose from 6.73 to 6.81%.  Meanwhile, daily average rates are already back over 7%.  Any way you slice it, rates have been rising quickly and the fallout is completely unsurprising when it comes to refinance applications. For context, here’s how the past year fits in the bigger picture: Refinance applications wax and wane with interest rates.  The present environment is particularly restrained by the fact that so many people refinanced to such low rates in 2020-2022.  At the moment, the only group of borrowers with a rate-based refinance incentive are those who purchased or refinanced in late 2023 when rates were near 8%. Purchase applications are much more even-keeled, but also not loving the current rate/affordability environment. Other highlights from this week’s survey:
Refinances accounted for 39.9% of total applications, down from 43.1% last week
Average loan size fell below $300k
FHA loans were 15.5% of total vs 16.4% last week
VA loans were 12.5% of total vs 14.6% last week
Conventional rates were 6.81 up from 6.73 vs jumbo rates at 6.98 (up from 6.77… a much bigger jump)
ARM rates fell from 6.20 to 6.05, but upfront costs increased from 0.59 to 0.84.