It May Have Seemed Like a Bad Day, But…

Ever since topping out last Thursday morning, bonds have been steadily recovering.  Each subsequent trading day has seen lower closing yields with yesterday’s roughly matching NFP Friday’s, also incidentally the lower end of the prevailing range at 3.80%.  Whether it was a range-bound bounce or the result of decent economic data, bonds respected the range and moved several bps higher today.  It may have seemed a bit overdone at times, but consider the closing levels under 3.86% in a 3.8-4.0 range.  Volatility risks increase on Friday with Powell’s Jackson Hole appearance.  Drama is not guaranteed, but there’s a chance the market walks away with increased clarity regarding the Fed’s play book for early September data and the size of the rate cut.

Econ Data / Events

Jobless Claims

232k vs 230k f’cast, 227k prev

Continued Claims

1863k vs 1870k f’cast, 1859k prev

S&P Services PMI

55.2 vs 54 f’cast, 55.0 prev

S&P Manufacturing PMI

48.0 vs 49.6 f’cast, prev

Market Movement Recap

08:40 AM Modestly weaker overnight with no major change after claims data.  MBS down an eighth and 10yr up 3.7bps at 3.838.

09:48 AM Small recovery into 9am hour, but now a bit weaker after PMI Data.  MBS back down an eighth and 10yr up 3.6bps at 3.838.

02:30 PM Bouncing back a bit from the weakest levels of the day.  MBS down 7 ticks (.22).  10yr up 5.7bps at 3.858.

“Great news! I got the whole plane to myself! The large group going to the psychic’s convention all cancelled at the last minute.” (No, this didn’t happen my flight to Orlando last night. It was, however, delayed four times for 90 minutes.) But speaking of news, frankly, I don’t see how the senior management of lenders and vendors keep up on the news with everything that is going on. Tomorrow on TMC’s Friday Rundown is Shelley Leonard who will be discussing the rationale behind the credit report costs as well as the acceptance of the tri-merge/bi-merge move. Many LOs remember when the FTC banned certain noncompete agreements. Well, fuhgeddaboudit. A ruling by US District Judge Ada Brown has halted the Federal Trade Commission’s ban on noncompete agreements, citing the agency’s lack of statutory authority. The ban was intended to promote competition and prevent wage suppression. My guess is that an appeal is in the works. (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 Steve Richman on public speaking trials and tribulations, the unpredictability of entrepreneurship, and what is important to originators now, based on his travels around the nation.) Lender and Broker Software and Services Revolution Mortgage cuts verification costs from 8 to 3 basis points. This is efficient operations, says Femi Ayi, Revolution Mortgage. Save up to $20K/month and reduce costs by 80% with Truv. See Truv in action.

There is an ongoing bias toward better buying and lower yields in the bond market in spite of a string of decent economic reports in the past week.  Just this morning, we have 2 of the week’s most relevant reports coming in at levels that could easily be used to justify a nominal in-range correction, yet yields remain much closer to the lower end of the consolidation range.

The important takeaway from the chart above is that 2024 claims have been running mostly below 2023 claims in addition to following a normal seasonal pattern, for the most part.

Following a breach at National Public Data, the National Consumer Law Center recommended consumers consider a credit freeze, but that could also hinder a mortgage applicant’s home purchase depending on where they are in the process, an expert says.

Industry economists are now confident about predictions for mortgage rate movements through the end of next year; the question is if that translates to increased home sales.

A federal judge in Texas ruled the Federal Trade Commission’s noncompete ban violates the Administrative procedures Act and exceeds FTC’s statutory authority.

Fay disputes claims it violated servicing laws and a previous order related to dual tracking allegations but agreed to settle without admission of wrongdoing.

Mortgage professionals interviewed say there should be more focus on increasing housing supply.

Bonds Snooze Through Fed Minutes

At first glance, and based on conventional wisdom, today’s most relevant calendar consideration for the bond market should have been the 2pm release of the Minutes from the most recent Fed meeting.  In reality, however, it would have been hard for bonds to care any less.  This isn’t a surprise considering we already knew the Fed discussed cutting in July and has all but promised to cut in September.  The day’s biggest source of inspiration was the confusion surrounding the scheduled 10am release of the QCEW payroll data as discussed in the AM commentary.

Econ Data / Events

Quarterly Census of Employment and Wages (QECW) for March 2024

Revised down 818k 
expectations ranged from 600k to 1.2m

Market Movement Recap

09:42 AM Flat overnight with small gains early.  MBS up 3 ticks (.09).  10yr down half a bp at 3.802

01:01 PM Plenty of volatility in a narrow range surrounding QCEW.  MBS now up an eighth of a point and 10yr down 2.4bps at 3.783.

02:07 PM Modest additional improvement after Fed Minutes.  MBS up 5 ticks (.16).  10yr down 4bps at 3.766.

03:58 PM Off the best levels, but MBS still up 2 ticks (.06) and 10yr still down 1.4bps at 3.793

Two weeks ago, we saw a sudden surge in refinancing activity. The Mortgage Bankers Association (MBA) reported that, during the week ended August 9, its Refinancing Index soared by almost 35 percent, reaching its highest level in over two years, and refinancing represented nearly half of all mortgage applications that week. A bubble? Perhaps, but a short-lived one. The “bubble” didn’t pop this week, but it did deflate.  Even as mortgage rates eased for the third week, the volume of refinancing applications, as well as mortgage activity in general, retreated. The Market Composite Index, MBA’s measure of m application volume, decreased 10.1 percent on a seasonally adjusted basis.  On an unadjusted basis, the Index was down 11.0 percent compared with the previous week.   The Refinance Index plunged by 15.0 percent compared to the previous week but was still 90 percent higher than the same week one year ago. The refinance share of mortgage activity decreased to 46.3 percent of total applications from 48.6 percent. [refiappschart] The seasonally adjusted Purchase Index was 5.0 percent lower than the prior week and was down 7.0 percent on an unadjusted basis. Purchase applications were 8.0 percent below those in the same week in 2023. [purchaseappschart] “Both mortgage rates and mortgage applications have now stabilized after a few weeks of financial market volatility, which led to a quick drop in mortgage rates. The 30-year fixed mortgage rate declin(ed) for the third consecutive week to 6.5 percent, the lowest since May 2023,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The level of refinance applications remains 23 percent higher than a month ago and the past two weeks have seen the strongest weekly readings since 2022, as borrowers have sought lower rates . FHA refinance applications bucked the trend and increased for the sixth straight week.”