Mortgage rates continue moving in very small steps from day to day–something that’s been the case since the Consumer Price Index (CPI) more than 2 weeks ago.  Unfortunately, more of those steps have been higher in the past week, and today is no exception for most lenders. This is counterintuitive to those who closely follow bonds markets and who understand that mortgage rate movement closely matches those underlying market movements.  Reason being: bonds are technically in stronger territory compared to yesterday.  Strength in the bond market almost always coincides with lower mortgage rates, but the timing of that strength can cause some inconsistencies.  For instance, bonds swooned yesterday afternoon and not every mortgage lender saw fit to raise rates in the middle of the business day in response.  Those lenders consequently had to adjust for both yesterday’s weakness and today’s strength in their latest rate offerings. Lenders who issued late day reprices yesterday were able to hold steady this morning or even offer slightly lower rates today. If all of that is a bit confusing, just consider that, despite several ups and downs over the past 48 hours, bonds are in weaker territory than they were yesterday morning during the time when lenders publish rate sheets.  Lenders either took their lumps yesterday afternoon or this morning.   As for motivations, the market is rapidly adjusting its preferences for different durations of bonds.  In other words, 2yr Treasury notes gained a ton of popularity over the past few days and even more since late June.  This is mostly a factor of the shift in the outlook for the Fed Funds Rate.  When traders make these adjustments, it can impact the bonds that more readily translate to mortgage rates.

As lenders continue to deal with change (the latest rumors have Flagstar is selling its mortgage group to Mr. Cooper; rumor only, ask your rep for real information), many people took note when ex-President Trump claimed, during his recent speech, that, “mortgage rates have quadrupled” during the Biden Administration. So, if Agency 30-year fixed rate mortgages were 3 percent, due to the pandemic, not due to political policies, they’d be at 12 percent now. That is not the case. There are still economics to discuss (Fannie Mae’s Chief Economist Doug Duncan will be interviewed today) but politics seem to be sucking up all the air in the room, and no, this isn’t the situation in a historical third-world nation. The presumptive Democratic nominee dropped out of the race one month before his party’s convention. A former president, and 2024 candidate, convicted of 34 felonies in a New York courtroom. A highly controversial Supreme Court decision on presidential immunity. The most consequential presidential debate in U.S. history. An assassination attempt broadcast on live TV. A judge dismissing additional charges against the former president, citing the Supreme Court ruling. It’s political chaos, and it’s far from finished. (Today’s podcast is found here and this week’s is sponsored by LoanCare, known for delivering superior customer experience as a mortgage subservicer through personalization and convenience, and supporting MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with AXIS’ Michael Simmons that provides a “finger on the pulse” of the appraisal industry and current trends in the valuation space.)

Federal Deposit Insurance Corp. Vice Chair Travis Hill has called for a full reproposal of the Basel III endgame capital standards, emphasizing the need for joint advancement by all three major federal banking agencies and an additional comment period for industry feedback.

The embattled Long Island-based bank announced the hiring of nine new senior executives. Most of them have ties to CEO Joseph Otting, who previously held the top job at the OCC and OneWest Bank.

Government data reports from June, though, point to an inauspicious start for new construction in the current quarter.

ACNB is acquiring Traditions Bancorp in an in-market deal where the latter’s mortgage ops will add to its insurance and wealth management units.

Rent growth will see a decrease of 2.7% and the vacancy rate will grow to 6%, Freddie Mac predicts.

Whatever Happened to Bonds Being Data Dependent?

Bonds began the day in stronger territory and remained stronger through mid-day despite AM volatility.  Some of the volatility was driven by economic data with S&P Global Services PMI coming in higher than expected.  Most of the day’s movement, however, was driven by “something else,” and something else pushed longer term yields higher while allowing short term yields to remain lower.  How do we reconcile that in this era where “data dependence” is so often repeated as the bond market’s prime directive?  First off, while today’s volatility was unpleasant in the afternoon, it was very small in the bigger picture.  It was also not so much about bond market weakness as it was about the yield curve normalizing.  This is not a phenomenon that will always need to play out at the expense of the 10yr and MBS.  That’s just the way it played out today.

Econ Data / Events

Wholesale Inventories

0.2 vs 0.5 f’cast, 0.6 prev

S&P Services PMI

56 vs 55 f’cast, 55.3 prev

S&P Manufacturing PMI

49.5 vs 51.7 f’cast, 51.6 prev

Market Movement Recap

11:00 AM Slightly stronger overnight, volatile after PMI data, but still in the green.  MBS up an eighth.  10yr down 4bps at 4.211.

01:03 PM some weakness before and after 5yr auction.  10yr down 1.4bps at 4.238.  MBS up 2 ticks (.06)

02:02 PM More weakness now.  10yr up 2.2bps at 4.273. MBS back to unchanged levels, down 6 ticks (.19) from highs.

03:56 PM MBS at weakest levels, down an eighth on the day and more than a quarter point from the highs.  10yr up 3bps at 4.281.

Mortgage rates technically moved up to the highest levels in 2 weeks today, but that sounds a bit more dramatic than it actually is.  Rates have largely held inside a narrow range close to the lowest levels in 6 months during that time.  Today’s weakness in the bond market just happened to nudge the average mortgage lender slightly above the highs seen this past Monday and Friday.  The average borrower wouldn’t see much of a difference between those rates and today’s. As for the underlying motivation for the movement, it doesn’t merit much discussion or investigation.  After all, we just made the case that recent movements are all just different flavors of “flat.”  Still, we like to get to the bottom of things every day, even when some days are more important than others.   In not so many words, the broader bond market is in the process of adjusting to a new reality in which the Fed begins to cut the Fed Funds Rate.  Ironically, there are times when this will mean that longer term rates like 10yr Treasury yields and mortgage rates will move higher at the same time that shorter term rates (like 2yr Treasuries) are moving lower.  This was a factor today as 2yr Treasuries improved more than twice as much as 10yr Treasuries deteriorated. The coming days are more likely to see bonds/rates reconnect with economic data as a primary motivation.  There are several important reports on Thursday and Friday morning, but the data’s significance will kick into even higher gear in the following two weeks. 

In Utah every year, July 24th commemorates “Pie and Beer Day,” the day in 1847 when the first group of pioneers reached the Salt Lake valley and their leader Brigham Young declared, “This is the right place.” Did I say “pie and beer” day? I meant Pioneer” Day. Sorry. 700 miles on Highway 80 to the west, housing issues continue. Do you think it’s easy, if you’re rich, to buy up the land and build a city? Nope, as billionaires are finding out in California: “Even spending hundreds of millions of dollars isn’t enough to build a city without giving the locals time to get used to the idea or see an environmental impact report.” Hey, if you don’t have the wealth to create a city, or have a private jet that goes overseas but have 60 grand burning a hole in your pocket and like to travel, next year you can jump on a Pan Am flight (yes, you read that right), and do the “Tracing the Transatlantic” itinerary: from JFK it stops in Bermuda, Lisbon, Marseille, London and Foynes, Ireland… All places that have significance to Pan Am and were on the airline’s old routes. (Today’s podcast is found here and this week’s is sponsored by LoanCare, known for delivering superior customer experience as a mortgage subservicer through personalization and convenience, and supporting MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with Better’s Chad Smith on LO comp, tech trends for originators, and borrower preferences.) Lender and Broker Software, Products, and Services