The move aims to end a conflict between service-related disability benefits and rental assistance. HUD and the Treasury also are looking at tax credit impacts.

Why Jobless Claims Data Moved Markets More Than Normal

Weekly jobless claims data is far from irrelevant, but also almost always a forgettable ingredient in the recipe for serious bond market movement.  There are scattered exceptions to that rule and today was a reminder.  Despite a mere 233k vs 240k beat, the bond market reacted the data as if it were one of the 4-5 top tier economic reports that account for the biggest average reactions. In seeking to reconcile that, we can consider the defensiveness priced into the market as a result of last week’s labor market data.  With today’s claims, we have the 2nd report of the week suggesting the labor market outlook may not be bleak enough to warrant much panic. In addition to all of the above data-related considerations, it has also been a busy week for corporate bond issuance which has added further pressure at times.

Econ Data / Events

Jobless Claims

233k vs 240k f’cast, 250k prev

Continued Claims

1875k vs 1870k f’cast, 1869k prev

Market Movement Recap

10:31 AM Slightly stronger overnight, then sharply weaker after jobless claims data.  MBS down 5 ticks (.16) and 10yr up 5bps at 3.999

01:16 PM Slightly into the 30yr bond auction, but now bouncing back with MBS down 5 ticks (.16) and 10yr up 4.8bps at 3.998. 

02:42 PM Weakest levels just after 2pm and another bounce.  MBS and Treasuries right in line with previous update.

Mr. Cooper’s PII leak late last year had a significant impact on its customers. Money has been stolen, unauthorized attempts to open credit cards occurred and extensive spam campaigns have followed, a filing claims.

The Treasury, CFPB and Federal Trade Commission are joining forces to warn consumers about predatory practices in financing solar energy panels.

Appraisal appeal rules announced by Fannie Mae, Freddie Mac and FHA set to go into effect in three weeks, will now be required starting on Oct. 31.

Vice President Kamala Harris recruited Minnesota’s governor to join the Democratic presidential ticket. He’s been a longtime advocate for affordable housing and rental protections.

The reverse mortgage lender is closer to profitability and plans to maintain its New York Stock Exchange listing status, executives said in an earnings call.

Yesterday saw one of the largest single day mortgage rate increases in years, although there were more than a few caveats.  We discussed those in greater detail in yesterday’s update.  Rather than attempt to condense and already-condensed explanation of esoteric market plumbing, here’s the link in case you missed it: https://www.mortgagenewsdaily.com/markets/mortgage-rates-08062024 Today was less exciting by comparison.  Bonds continued to lose ground, but mainly in the longer end of the yield curve (i.e. 10 and 30yr Treasuries were higher in yield while 2 and 3yr Treasuries were lower).  At the moment, mortgages have more in common with 5yr Treasuries than their normal 10yr Treasury benchmark.  As such, on a day where the 5yr is doing better than the 10yr, it’s no surprise to see mortgage-backed bonds doing a bit better than the 10yr would suggest. Nonetheless, rates moved modestly higher with the average lender now much closer to the 6.625% level on a top tier conventional 30yr fixed.   With that, the past 2 days end up looking like a typical correction following a sharp drop in rates.  The initial bounce is almost always the biggest with subsequent days losing steam.   There’s no way to know if this correction has run its course.  The global sources of volatility that made Monday so crazy could re-emerge, or we could see a new motivation come to light. Either way, the more important consideration is next week’s inflation data, which has more power than anything else on the near term calendar to set the next trend for rates. 

Bonds Selling Off Like it Was Always The Plan

Very little transpired during Wednesday’s trading session to change the outlook in the morning commentary.  With the volatility associated with Monday’s market shock out of the way, this week increasingly looks like the kind of token bond market correction/consolidation that frequently plays out on a relatively data-free week that follows a strong rally and that precedes a significant event (i.e. next week’s CPI).  This correction might have been more obvious at the start of the week had it not been for the global market shock associated with the Yen carry trade unwind.  As of today, it’s progressed far enough that we can begin to ask if we’ve seen enough for things to calm down.

Econ Data / Events

ISM Services

51.4 vs 51.0 f’cast, 48.8 prev

ISM Biz Acitivity

54.5 vs 49.6 prev

ISM Prices

57.0 vs 55.8 f’cast, 56.3 prev

Market Movement Recap

08:36 AM Moderately weaker overnight but MBS recovering to unchanged levels.  10yr still up 3.5bps at 3.927

12:20 PM A bit of weakness before the noon hour, but roughly in lines with previous levels in MBS, down 1 tick (0.03).  10yr up 4.8bps at 3.942.

01:15 PM Weaker after 10yr auction.  MBS down 3 ticks (.09).  10yr up 7bps at 3.96.

02:44 PM Weakest levels of the day now with 10yr up 7.5bps at 3.968.  MBS down an eighth.

Coming into this week, the most logical base case was for a moderate correction in the bond market owing to the strong rally last week and the absence of data this week, all ahead of next week’s big CPI data.  The stronger-than-expected ISM data on Monday solidified that case.  The only problem was the massive global market volatility that peaked early Monday morning.  Now that stocks, USD/JPY, foreign bonds, VIX, etc. have all bounced, the week is falling more in line with the base case.  In fact, we are arguably slightly weaker at this point than the base case, considering 10yr yields are back above Friday’s levels.  The counterpoint is that the unwinding of the Yen carry trade began before Friday’s jobs report, so it could be that bond yields were a bit artificially strong at the end of last week.

As far as MBS outperformance is concerned, it’s notable today due to MBS being roughly unchanged while Treasuries are noticeably weaker.  But there’s a very big, very obvious catch, and it’s easy to see when we line up the movement in MBS and Treasuries over the past few weeks (note: this requires inverting MBS prices so the movement matches bond yields.  As such, lower=stronger for MBS in the following chart).