A Clear Reaction to Data Without Any Major Drama

After this morning’s initial reaction to Initial Jobless Claims, the rest of the day was uneventful and sideways.  By 9:00am, 10yr yields had risen about 4bps to 3.866–which was the exact same level seen at the 3pm close.  MBS outperformed in day over day terms, but had a distinct moment of underperformance just after 3pm.  From here, we get into consistent daily doses of big ticket econ data culminating in next Friday’s jobs report.  Volatility potential is increasing accordingly.

Econ Data / Events

Jobless Claims

231k vs 232k f’cast, 233k prev

Continued Claims

1868k vs 1870k f’cast

GDP 

3.0 vs 2.8 f’cast, 

GDP Deflator

2.5 vs 2.3 f’cast, 3.1 prev

Core PCE Prices (q/q annualized)

2.8 vs 2.9 f’cast

Market Movement Recap

08:48 AM Modestly stronger overnight but losing ground after 8:30am data.  MBS down 2 ticks (.06) and 10yr up 3bps at 3.866.

11:20 AM weakest levels with MBS down an eighth and 10yr up 4.3bps at 3.879

02:34 PM small rally in PM hours.  MBS down only 2 ticks and 10yr up 2.9bps at 3.864

04:51 PM Off the weakest levels heading into the close with MBS down 3 ticks (.09) and 10yr yields up 2.7bps at 3.863

There was a solid decade between 2010 and 2020 where weekly Jobless Claims data was completely inconsequential.  The labor market had taken the hit from the great financial crisis and there was no meaningful role for Claims to play as an alarm bell for another shift. 
The pandemic brought renewed relevance for timely data, but after lockdowns ended, the labor market only went one way until the summer of 2023.  At the time, there was confusion regarding the imperfect seasonal adjustment factors, and there’s been a bit of a repeat in 2024. 

But when we look at the NON-adjusted numbers, we can see 2 things.  Not only is the summertime spike a normal seasonal pattern, but 2024 is not looking very different from 2019, 2022, or 2023 (and yes… it DID look different 5 weeks ago, which is one of the reasons for the sharp rally when NFP came out much lower the following day… i.e. it suddenly seemed like the labor market had shifted without warning).

Simply put, the adjusted numbers made it seem like the labor market was deteriorating in the summer, but it turned out to be inappropriate adjustment factors.
Incidentally, the chart above has been updated for today’s Claims data and the red line remains in the mix with recent years.  As long as that continues to be the case, bond bulls are deprived of the evidence needed to fuel the more aggressive rate rally scenarios.  That is the dominant reason for today’s moderate bond market weakness–not GDP, not the stale quarterly PCE data, not the deflator, etc.

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Real estate agents and loan officers from post-Soviet states say the war has altered relationships between one another and made dialogue with some clients strained.

New rules from Treasury’s Financial Crimes Enforcement Network will mandate reporting for non-financed real estate transfers and expand anti-money-laundering requirements for investment advisors.

While lower rates have peaked borrower interest, most are waiting for some key events to pass before buying or refinancing, originators said.

Purchases managed a small rise, but refinance activity held steady, according to the Mortgage Bankers Association.

Without Major Data, Bonds Remain Quiet

While it makes riveting analysis a challenge, it’s not necessarily a bad thing for the bond market to be incredibly boring sideways right now.  After all, we’ve had a stable run of rates near their longer-term lows for several weeks.  Volatility could creep back in with the upcoming economic reports, but today, it was nowhere to be found.  Bonds started slightly stronger and drifted slightly weaker throughout the session with MBS not even an eighth of a point away from yesterday’s latest levels for the entirety.  Data relevance increases sharply on Thursday with Jobless Claims and quarterly PCE (via GDP).  

Econ Data / Events

Case Shiller Home Prices

up 6.5% y/y vs 6.0% f’cast
up 0.6% in June

FHFA Home Prices

down 0.1% in June vs +0.2% f’cast
up 5.1% y/y vs 5.3% f’cast

Consumer Confidence

103.3 vs 100.7 f’cast, 101.9 prev

Market Movement Recap

10:19 AM Mostly flat overnight with quick 2-way volatility in the first 2 hours.  10yr unchanged at 3.826.  MBS unchanged.

01:03 PM No reaction to uneventful 5yr auction.  MBS down 1 tick (.03) and 10yr up 1bp at 3.836.

01:41 PM Weakest levels.  MBS down 2 ticks (.06) and 10yr up 1.2 bps at 3.84

The mortgage market seemed to be in a wait-and-see mode last week as the Federal Reserve signaled a might, maybe, we are thinking about it, approach to a September rate cut. In the interim, most interest rates inched lower. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, increased 0.5 percent on a seasonally adjusted basis from one week earlier and fell 1.0 percent on an unadjusted basis.   The Refinance Index dipped 0.1 percent from the previous week but has now climbed to an  85 percent lead over the same week one year ago. The refinance share of applications increased to 46.6 percent of the total, up from 46.3 percent the prior week. [refiappschart] The seasonally adjusted Purchase Index increased 1.0 percent but was 1.0 percent lower before adjustment. Purchase applications were 9.0 percent lower than the same week one year ago. [purchaseappschart] “Mortgage rates declined for the fourth consecutive week, with the 30-year fixed rate at 6.44 percent, the lowest since April 2023. Rates have now come down more than 80 basis points from a year ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Mortgage applications were slightly higher, driven by marginally stronger purchase activity. Refinance applications were essentially unchanged but are still 85 percent higher than last year as borrowers continue to act – particularly FHA and VA borrowers. As observed in recent weeks, despite lower rates, purchase applications have not moved much. Prospective homebuyers are staying patient now that rates are moving lower and for-sale inventory has started to increase.”

It would have been hard for the present week to be any more of a boring, sideways grind than the previous week, but so far, so boring!  Why do we say that?  Consider that this is the 14th straight day with yields inside the range set on NFP Friday, the 6th straight day holding inside a 10bp trading range with less than 5bps of directional movement.  Things do get more boring at times, but not by much.  This isn’t a huge surprise given the market’s focus on only a handful of the most closely watched reports.  With none of those on tap, we’re left to watch things like today’s 5yr Treasury auction for short-term, small scale guidance.