Momentum has been building and focus has been shifting.  After a few years of inflation reports giving the jobs report a run for its money in terms relevance to the bond market, things have rapidly been shifting back to the more typical pattern of the past few decades.  That typical pattern has one throne and one king: The Employment Situation (aka “the jobs report”). This reality has been firmly reinforced by the Fed’s messaging (speakers have expressed calmer attitudes on inflation and discussed increased focus on the labor market). While we wait for Friday’s jobs report, the week’s other reports and events are also worth tuning in for.  Today is the lightest calendar day with the only notable event being a Powell speech at 1:55pm ET.  

Moderate Losses For Bonds as Powell Stays “Hawkish”

In the lexicon of market watching, the Fed is considered to be dovish when they’re saying things that are generally friendly for rates.  When the opposite is the case, the term is “hawkish.”  Relative to expectations, the market felt Powell was hawkish at the press conference 2 weeks ago.  Because of that, and because of the bond losses that followed, there was some false hope for a dovish counterbalancing act today.  It wouldn’t exactly be fair to say Powell was hawkish, but he certainly wasn’t feeling compelled to throw the bond market a bone.  The comment earning the most focus was essentially a reminder that the Fed is not in a hurry to cut rates and will be guided by data.  This isn’t really anything new, but bonds were modestly disappointed nonetheless. 

Market Movement Recap

09:40 AM Choppy weakness overnight with a modest bounce back early.  MBS down 3 ticks (.09) and 10yr yields up 1.6bps at 3.766

11:17 AM MBS now down 6 ticks (.19) and 10yr yields are up 2.5bps at 3.775

02:14 PM Weakest levels now.  MBS now down more than a quarter on the day 10yr yields are up 4.7bps at 3.797

03:58 PM Modest bounce near the end of trading for the day.  MBS still down 9 ticks (.22), but 10yr now up only 3.8bps at 3.788

The disaster underscores Americans’ dangerously low levels of flood insurance coverage, especially away from coastal areas.

Some recipients of the new multimillion-dollar funding announced this week include several organizations partnering with historically Black colleges and universities.

The core personal consumption expenditures price index increased 0.1% from July, and on a three-month annualized basis, it rose by 2.1%.

State housing finance agencies had a resurgent fiscal 2023 and the recent fed funds rate reduction could have a mixed impact on them, Fitch Ratings said.

Specialized Loan Servicing allegedly charged borrowers $7.50 for processing mortgage payments made by phone. Most servicers, including Newrez, have axed this fee.

Just a few months ago, the big ticket inflation reports were just as relevant as the jobs report in terms of their ability to cause movement in the bond market.  As CPI/PCE calmed down over the past 5 months, bonds and the Fed shifted gears to place the heaviest focus on the jobs report and other labor market indicators.  But inflation will continue to matter until it becomes completely boring and we’re not there yet.  Thankfully today’s was just a bit better than expected and that’s helping bonds hold overnight gains. 

To understand just how well-behaved inflation data has been recently, forget the annual charts that are still peeling off the higher inflation months from last year and consider the very obvious trend in the month over month chart.  

These are rounded figures but the takeaway isn’t much different if we use the unrounded numbers.

‘Tis the season for things to be something other than what they appear to be, apparently. Lenders are talking about new loan limits, but they haven’t officially changed. News stories are saying rates went lower this week, but they’re higher. And there’s even talk of a big refi boom, but as you may have guessed, that’s also not exactly right. Rates . Rates continued to move slightly higher (yes, higher), while remaining close enough to long-term lows.  This chart of 10yr Treasury yields (a proxy for longer-term rates like mortgages) does a good job of capturing all of the positive momentum seen in recent months as well as the mild correction that began after last week’s Fed rate cut. Things look even milder if we focus on mortgage rates.  In fact, one measure of mortgage rates (Freddie Mac’s weekly survey) is so mild that it actually went LOWER this week.  Sadly, Freddie’s numbers don’t align with reality this week.  We are normally able to use the objective daily numbers from MND to reconcile such discrepancies, but it’s not possible in this case.  If you want a deeper dive on this phenomenon, here you go: Mortgage Rates are 100% NOT Lower This Week. Loan Limits and Home Prices Other misdirection plays are much easier to explain.  For instance, you may see some lenders advertising new conforming loan limits that are near, or over $800k.  Official conforming loan limits are announced at the very end of November.  So who’s lying?

Finally Cooling Off Just in Time to Heat Up Again

Much of the past week has been spent monitoring the “post-Fed correction”–a nominal pull back in the impressive rate rally of the past several months following last week’s Fed announcement.  If you prefer “buy the rumor, sell the news” on the Fed rate cut, it’s the same thing.  By the end of this week, the correction finally looked to have leveled off, even if it got a bit of help from cooperative econ data.  The timing is frustrating for those looking to predict the future as next week brings us even more squarely into a data-driven episode for bonds/rates.  The not-so-frustrating thing is that the correction was never very large (downright small, even).

Econ Data / Events

M/M Core PCE

0.1 vs 0.2 f’cast, 0.2 prev
Unrounded 0.13

Y/Y Core PCE

2.7 vs 2.7 f’cast, 2.6 prev

Consumer Sentiment

70.1 vs 69.3 f’cast, 67.9 prev

Market Movement Recap

08:37 AM slightly stronger after PCE.  10yr yields are down 2.9bps at 3.769 and MBS are up an eighth of a point.

11:03 AM Giving up early gains.  MBS up only 2 ticks (.06) and 10yr down 2.3bps at 3.773

12:45 PM Best levels of the day now with MBS up 7 ticks (.22) and 10yr down 5.3bps at 3.743

05:18 PM Heading out at the day’s best levels or close to it.  MBS up 6 ticks (.19).  10yr down 4.6bps at 3.75