Bonds Unexpectedly Forced to Focus on War Instead of Data

Just 30 minutes before the month’s most important week of economic data was about to hit its stride, headlines hit the newswires regarding an imminent missile attack on Israel.  While various iterations of such headlines are unfortunately common, these examples got the market’s attention, resulting in a quick “flight to safety” trade (stock prices and bond yields moved lower).  When the AM econ data came out 30 minutes later, the impact on bonds was insignificant by comparison.  The initial flight to safety was unwound in the afternoon, but bonds remained in moderately stronger territory on the day.

Econ Data / Events

S&P Manufacturing PMI

47.3 vs 47.0 f’cast, 47.9 prev

ISM Manufacturing

47.2 vs 47.5 f’cast, 47.2 prev

ISM Prices Paid

48.3 vs 53.3 f’cast, 54.0 prev

Job openings

8.04m vs 7.66m f’cast, 7.71m prev

Job quits

3.084 vs 3.27m prev (lower is better for rates)

Market Movement Recap

10:30 AM Flight to safety rally after Israel/Iran headlines and then flat after data.  MBS up 5 ticks (.16) and 10yr down 7.9bps at 3.704

01:03 PM strongest levels for MBS with 5.0 up a quarter point.  10yr down 7.2bps at 3.711

02:03 PM weakest levels now with MBS still up 2 ticks (.06) and 10yr down 4.4bps at 3.739

03:46 PM Off the weakest levels now.  MBS up an eighth and 10yr down 4.3bps at 3.74.

This morning’s slate of economic data is certainly higher-profile compared to yesterday with JOLTS and ISM Manufacturing always capable of moving the needle.  Ironically, it was geopolitical headlines that accounted for the lion’s share of this morning’s volatility, however, with Israel/Iran newswires sparking a flight to safety 30 minutes before the data.  Volume and and movement were noticeably larger at that time, bringing bonds to their best levels of the morning.  The data itself hasn’t left a lasting mark on today’s trading.

We find ourselves in the 4th quarter of 2024. October is here! Do you want to beat the rush for buying the Halloween candy that’s most popular in your state? Here’s the list. Skittles are the most popular in Georgia, where Jimmy Carter celebrates his 100th birthday. Topics here at the ACUMA event in Las Vegas include servicing values, longevity, and prepayments. No one knows how long anyone will live, or even, for sure, when a loan will pay off. If you had a crystal ball, which no one does, and an investor knew that mortgage rates were going to go down, why would that investor pay 103 for a loan? Would you pay up for a VA loan, given the refinance characteristics of that program? There is certainly a lot of information exchanged at conferences, and Senior Partner Garth Graham and STRATMOR Senior Advisors Sue Woodard and Brett McCracken share insights today at 11AM PT, 2PM ET, from the recent events attended, discuss upcoming conferences, and give tips on achieving the most value from upcoming conferences. (Today’s podcast is found here and this week’s is sponsored by Candor. Candor’s authentic Expert System AI has powered more than 2 million flawless, hands off underwrites. Every credit risk decision Candor makes is backed by a Warranty, eliminating repurchase worries. Hear an interview with Fannie Mae’s outgoing and incoming chief economists, Doug Duncan and Mark Palim, on their role at Fannie, what drove them into the profession, trials and tribulations of forecasting, and more.)

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Mortgage rates have generally been moving higher since the Fed cut rates 2 weeks ago.  We’ve discussed and explained that paradox exhaustively and can now move back to tracking the normal array of cause and effect in the rate market. The first day of the new week kept the trend of steady rate increases alive. Technically, these are the highest rates since September 9th, but it’s important to remember that there’s been very little change in the bigger picture.  Apart from the past few weeks, today’s rates would still be the lowest in more than a year. While today’s weakness can’t be reduced to a single factor, the primary motivation was a speech from Fed Chair Powell in which he reminded the market that the Fed was not in a hurry to cut rates.  The message wasn’t that different from the press conference that followed the Fed rate cut 2 weeks ago, but some market participants were perhaps hoping to see a softer side of Powell.  From here, the schedule of economic data brings distinct opportunities for volatility in rates every day for the rest of the week.  Friday is the most highly consequential due to the jobs report release at 8:30am ET.

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