Trended credit data that the industry’s increasingly required to use could help mortgage firms better forecast delinquencies and prepayments, a new study finds.

MBS Easily Outperform Longer-Term Treasuries

Few market watchers would have guessed that MBS would have held almost perfectly sideways since the start of trading on Wednesday this week.  Sure, there’s been just over an eighth of a point of movement in either direction, but prices are ending the day right in line with yesterday morning’s opening levels.  Today’s econ data presented some early headwinds, but they were overcome in short order.  MBS did especially well versus 10yr Treasuries due to the fact that MBS move more like shorter-term Treasuries these days (and shorter-term Treasuries were rallying). 

Econ Data / Events

Jobless Claims

219k vs 230k f’cast, 231k prev

Philly Fed Index

1.7 vs -1.0 f’cast -7.0 prev

Market Movement Recap

08:37 AM MBS are down a quick 2 ticks (.06) and 10yr yields are up 5.1bps at 3.754

12:47 PM Off the weakest levels and sideways.  MBS down only 1 tick (0.03) and 10yr up 4.3bps at 3.745

03:31 PM Slightly better over the past few hours.  MBS up 1 tick (.03).  10yr up 2.3bps at 3.725

The Federal Reserve chair said he supports the revised proposal outlined by Vice Chair for Supervision Michael Barr and said the new proposal would get a vote by the full Board of Governors early next year.

OceanFirst’s own press release points out the federal government has obtained $120 million in relief in similar cases since 2021.

The move signals the end of the Federal Reserve’s battle against runaway inflation in the wake of the COVID-19 pandemic. Fed officials expressed divergent views on further action this year.

The government agency also finalized a rule that will bring virtual home buyer counseling services to consumers.

Short-term rate cuts often don’t immediately translate to lower financing costs for 30-year home loans, and there are some unique circumstances this time.

We publish daily coverage of mortgage rate movement and have done so for nearly 20 years now.  It’s a great place to quickly check in on rate trends and to get a sense of what’s true and what matters.  If you’d been checking in at any point in the past few days/weeks, you likely saw one of several attempts to remind readers that today’s Fed rate cut not only had absolutely no implication for lower mortgage rates, but indeed that mortgage rates have often moved higher on the same day that the Fed cuts. That’s what happened today.   Interestingly enough, mortgage rates were already slightly higher than yesterday BEFORE the Fed announcement came out.  The bonds that dictate mortgage rates are actually pointing to even higher rates tomorrow unless there’s a decent improvement overnight. Given short attention spans, here’s a bullet point list of why this paradox can exist:
The Fed meets 8 times a year whereas mortgages can move every day
The bonds that influence mortgages can move every second.
That means mortgage rates had a long head start toward lower rates while the Fed waited for their meeting date
A trader would be stupid to keep a tradeable rate/bond in higher territory if they knew as well as you did that the Fed was cutting rates today.  Why would they wait to trade mortgage rates lower?  Nothing was stopping them and that’s why rates have dropped so much in recent months.

Bonds Lose Ground Despite Larger Fed Rate Cut

The Fed was either going to cut 0.50% or 0.25% today.  It opted for the larger cut but the bond market LOST ground.  For those who hadn’t tuned in over the past few weeks to learn why such things can happen, there were two potential reasons: the dot plot and Powell’s press conference.  The dot plot was inoffensive and actually left bonds in slightly better shape.  It was Powell’s press conference that caused the reversal this time.  He didn’t show visible concern on the labor market.  He was clear to specify that 50bp isn’t the pace of cuts until further notice.  He stayed well clear of declaring victory on inflation.  And he reiterated that the “neutral rate” is probably “significantly higher” than before the pandemic.  Combine all that with a bond market that had been in a relatively aggressive position heading into Fed Day and the moderately weaker closing levels are about as boring and logical a result as anyone could imagine.

Econ Data / Events

Housing Starts

1.356m vs 1.31m f’cast, 1.237m prev

Building Permits

1.475m vs 1.41m f’cast, 1.406m prev

Market Movement Recap

08:34 AM Modestly weaker overnight with losses starting in Europe.  MBS down 3 ticks (.09) and 10yr up 2.5bps at 3.681

10:23 AM Some additional losses  with MBS now down 5 ticks (.16) and 10yr up 3.3bps at 3.689

12:06 PM Off the weakest levels.  MBS down 5 ticks (.16) and 10yr up 3bps at 3.685

02:33 PM Plenty of volatility after Fed’s 50bp cut and aggressive dot plot.  10yr currently down 1.5bps at 3.64 and MBS up 1 tick (0.03) in 5.0 coupons.

03:12 PM Losing some ground now with MBS back to pre-Fed levels and down a quarter point from highs.  10yr up to highs of day at 3.70

04:07 PM weakest levels of the day.  MBS down 7 ticks (.22) and 10yr up 6bps at 3.713

There is special providence in a 50bp Fed rate cut.  If it be now, ’tis not to come (until the next Fed meeting perhaps).  If it be not to come, it will be now: if it be not now, yet it will come. 
Hamlet may have known about sparrows, but he wasn’t much of a Fed analyst. We’ll cut him some slack because sparrows only die once whereas Fed rate cuts are immortal. He did get a few things right though.  The most important wisdom is that one outcome has a logical bearing on others.  The same ifs and thens are likely in play today.  “If it be not 50bps, the dots will show more cuts.  If it be 50bps, the dots will show less.”  While the baseline is for the biggest initial volatility to come in response to the size of the cut itself, it will probably ultimately be the dots that set the tone.  Because there is not good running consensus on the dots, it  is a guessing game to assign credit for market movement.  The readiness is all.