While they may not be the most highly consequential economic reports on any given month, today’s S&P Global PMIs were our best shot to see some volatility in the bond market today.  In their defense, they managed to deliver, even if only on a small scale.  As expected, it was the Services PMI that carried more weight, pushing yields higher due to the strong 56.0 reading (highest since April 2022). The selling has been short-lived so far, and almost non-existent in the short end of the yield curve.  In other words, 2yr Treasuries are crushing it today compared to 10s.

That said, the long end of the curve seems to have been operating on slightly different motivations.  The discrepancy in the pace of the move suggests longer dated bonds seeing a few big trades from traders adjusting their
Lastly, we can entertain if the AM rally was driven by rate cut odds improving for July after a particularly strong comment from ex NY Fed pres Dudley (who literally said the Fed should cut in July).  A closer look at Fed Funds Futures suggests no major change to July’s odds.

December contracts, however, do show some reaction.  Either that or traders were seeing other reasons to ramp up rate cut odds around the same time.  Some indecision is warranted due to the absence of a nice vertical drop right at the time of Dudley comments.  

The market will receive more clarity on the shape of the yield curve after today’s 5yr Treasury auction at 1pm ET.

Interest rates and prices continued to curtail home sales in June. The Census Bureau and the Department of Housing and Urban Development reported on Wednesday that new home sales declined again last month, although the decline was far less severe than the 5.4 percent drop reported for pre-owned homes on Tuesday. Sales of newly constructed single-family homes were at a seasonally adjusted annual rate of 617,000 units , down 0.6 percent from the previous month’s rate of 621,000. The May figure was revised upward from the original 619,000 estimate. June sales in 2023 were at the rate of 666,000. This is  7.4 percent higher than the current figure. [newhomesall] On an unadjusted basis, sales in June totaled an estimated 53,000 units, down from 56,000 the prior month. Year-to-date sales total 356,000, only 0.5 percent of the total during the first six months of 2023. At the end of June, there were 475,000 new homes available for sale. This supply is estimated to be sufficient for 8.9 months at the current sales pace and is the amplest inventory since November 2023.  Less than a quarter of those homes, however, are ready for occupancy. The median price of a new home sold in June was $417,300, $300 less than the median one year earlier. The average price dropped from $507,800 to $487,200. [newhomeprices] Sales in both the Northeast and Midwest moved lower in June. The Northeast was down 7.7 percent from May and 63.6 percent year-over-year and the Midwest lagged the two prior periods by 6.9 percent and 32.8 percent, respectively.

Witnesses from companies across financial services and housing, including a credit union and a core services provider, attested to the value of AI in fighting fraud and boosting customer service at a hearing in the House of Representatives.

Sluggish gain-on-sale margins however were the result of competitive pricing in the market, the company said.

Nearly 56,000 home-purchase agreements were voided in June with the underlying cause likely affordability, a Redfin report claims.

A run-up in mortgage rates and a constrained resale market has enabled builders to capitalize on the fractured U.S. housing landscape.

Lower inflation and a slowing jobs market is the driver of the new forecast, but housing will not see any immediate benefits.

Afternoon Weakness For Longer-Term Bonds. Are MBS in That Category?

It’s easy to throw around general categories when discussing the bond market such as “longer” and “shorter” term (also seen as longer and shorter ends of the yield curve). But where is the cut off?  In general, the current crop of MBS being produced to cover new mortgage originations is actually somewhere in the middle of the pack (i.e. the belly of the curve). That’s because the average newly-originated mortgage is not expected to last nearly as long as the 10yr Treasury note that often serves as a basis for comparison. Who cares?  Not us, usually.  It only matters on days where long and short term rates are doing noticeably different things. In today’s case, that provided some small benefit to MBS when compared to the 10yr.

Econ Data / Events

Existing Home Sales

3.89m vs 4m f’cast, 4.11m prev

Market Movement Recap

10:09 AM modestly stronger overnight and sideways so far.  MBS up 3 ticks (.09) and 10yr down 2.4bps at 4.228.

01:01 PM still sideways ahead of 2yr Treasury auction.  10yr down 2.4bps at 4.22.  MBS up 3 ticks (.09).

03:58 PM Near weakest levels, but in a narrow range.  MBS up 1 tick (.03) and 10yr down only 0.4bps at 4.249

Existing home sales fell in June, but the median sales price hit a record high as it had also done in May . The National Association of Realtors® said sales of previously owned single-family houses, townhouses, condominiums, and cooperative apartments receded by 5.4 percent compared both to May and sales in June 2023. Total sales were at a seasonally adjusted annual rate of 3.89 million units. Annual sales in the two earlier periods were at the rate of 4.11 million. Single-family home sales dropped 5.1 percent from May to a rate of 3.52 million in June and were 4.3 percent lower than a year earlier. The annual rate of existing condominium and co-op sales, estimated at 370,000 units, was 7.5 percent lower than the May number and 14 percent below the 430,000 sales posted a year earlier. [existinghomesdata] Home sales just missed the bottom of the range of forecasts from analysts polled by Econoday. Those estimates ranged from 3.90 million to 4.25 million with a consensus of 4.0 million. “We’re seeing a slow shift from a seller’s market to a buyer’s market, ” said NAR Chief Economist Lawrence Yun. “Homes are sitting on the market a bit longer, and sellers are receiving fewer offers. More buyers are insisting on home inspections and appraisals, and inventory is definitively rising on a national basis.” Clearly, the shift to a buyers‘ market is not yet complete as prices continue to rise. The median sales price for all housing types in June was $426,900, an all-time high and an increase of 4.1 percent from the June 2023 median of $410,100. Single-family home prices were also up 4.1 percent to $432,700. The increase in condo prices was more modest, 2.6 percent, resulting in a median of $371,700. [existinghomeprices]

Spats of volatility in the mortgage rate world seem to last only a matter of hours recently and to occur only a few times on any given month.  The rest of the time is spent drifting mostly sideways waiting for the next big shoe to drop. We’ve been decisively locked in one of those “drifting” moments for almost 2 weeks now with the last big move seen in response to the inflation data that came out on the morning of June 11th.  The average top tier 30yr fixed rate has been in the 6.8s ever since. Today’s change was minimal with many lenders effectively unchanged compared to yesterday morning’s offerings.  Some lenders made adjustments toward higher rates yesterday afternoon in response to market weakness, and are now back down in line with averages.  When will the sideways drift change?  Volatility has most reliably followed one of several of the most important economic reports.  None of those reports are coming out this week, but there are a few solid supporting actors that will begin hitting the wires tomorrow morning (specifically, S&P Global’s manufacturing and service sector indices).  This won’t singlehandedly change the outlook for rates, but it may cause slightly bigger movement between now and the first two weeks of August, when the big ticket data actually arrives.