More Data Defiance. Maybe It’s All About Claims?

Bonds have been trending gently stronger after last week’s CPI numbers, which is notable considering the headwinds presented by Tuesday’s Retail Sales.  Wednesday’s data didn’t suggest a recovery from overnight weakness, but we got one nonetheless–perhaps with some help from Fed speakers adding to the sense of a September rate cut. While the modestly bullish bias has been able to defy the data seen so far, the Fed’s focus on the labor market may mean that Thursday’s Jobless Claims number is a better headliner for the week than Retail Sales.  After all, this is the installment that lines up with survey week for the forthcoming jobs report.  

Econ Data / Events

Housing Starts

1.353m vs 1.330m f’cast

Building Permits

1.446m vs 1.40m f’cast

Industrial Production

0.6 vs 0.3 f’cast, 0.9 prev

Market Movement Recap

09:15 AM Sideways to slightly weaker overnight with no major movement so far.  MBS down 6 ticks (.19) and 10yr up 2.3bps at 4.182.

12:55 PM Gradually moving to best levels of the day with 10yr now unchanged and MBS nearly unchanged.

03:07 PM Slightly deeper into today’s lowest yields with 10yr down 1.2bps at 4.147.  MBS up 1 tick (.03).

Mortgage application activity staged a moderately strong recovery from the previous holiday-shortened week, although the recovery was attributable solely to the refinance side of the business. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage application volume, increased 3.9 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index was up 30 percent. The Refinance Index surged by 15.0 percent compared to the previous week and was 37 percent higher than the same week one year ago. The refinance share of mortgage activity jumped to 38.8 percent of total applications from 34.9 percent and was the largest since mid-December 2023. [refiappschart] Purchasing on the other hand declined 3.0 percent after seasonal adjustment although it was up 22 percent before it. The Purchase Index was 14 percent lower than during the same week one year ago. [purchaseappschart] “Mortgage rates declined last week, as recent signs of cooling inflation and the increased likelihood of Fed rate cuts later this year pulled them lower. The 30-year fixed rate declined to 6.87 percent, the lowest rate since March 2024,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Application activity was up 4 percent, driven by a 15 percent jump in refinances to the highest level since August 2022. While FHA and VA refinance applications accounted for a significant share of the increase, these are likely recently originated loans with even higher than current offered rates. Even with last week’s rate decline, purchase applications continue to lag, down 14 percent compared to last year’s pace.”

Just because an economic calendar is full doesn’t mean it’s of any major importance to the bond market.  Today fits the bill with the two economic headliners being Housing Starts and Industrial Production.  Both have already come and gone without any reaction.  The market has been more interested in trading a single comment from Fed’s Waller, who said the time to cut rates is getting closer based on the most likely policy scenario.  Yes, that’s a bit cryptic, but he basically described 3 bowls of porridge and then said the warm one was the most likely.  Bonds rallied for a moment and then went back to the prevailing trend from the overnight session.

Amid a rocky re-election campaign, the president announced the Biden-Harris Housing Plan, calling on Congress to incentivize landlords to cap rents and enable the construction of two million homes.

Rocket Mortgage relied on a biased appraisal when it denied a borrower’s refinance application in Denver three years ago, the housing agency claims.

The resilience of the equity market has been underpinned by optimism the economy has withstood the worst of Fed tightening.

Further efficiencies could aid servicers, and improved performance may be a reason for lenders to open the credit box, experts at an Urban Institute event said.

Last year alone, insurers increased their holdings of residential mortgage loans by a whopping 45%, or about $20 billion, according to an analysis by Ellington Management Group.

Bonds Shake Off Retail Sales Impact to End Stronger

This morning’s Retail Sales data may have been right in line with forecasts at the headline level, but components of the report were much stronger than expected.  As such, the initial sell-off made logical sense, or at least it was able to be explained in hindsight.  The rest of the trading day was consistent with 0.0% retail sales growth as bonds slowly regained all of the ground lost in the morning, ultimately hitting the day’s best levels just before the 3pm close.  MBS underperformed 10yr Treasuries but fared roughly the same as the short end of the yield curve (more on that in today’s video).

Econ Data / Events

Retail Sales

0.0 vs 0.0 f’cast, 0.1 prev

Retail Sales Excluding Gas and Autos

+0.8, highest since January

NAHB Housing Market Index

42 vs 44 f’cast, 43 prev

Market Movement Recap

08:35 AM  MBS are back to unchanged levels. 10yr yields are down 3.2 bps at 4.20%.

11:06 AM Doing a decent job holding in positive territory now.  MBS up 3 ticks (.09).  10yr down 3.7bps at 4.196.

02:03 PM Treasuries back at best levels, down 6bps at 4.173.  MBS up an eighth.

03:52 PM Heading out at best levels with 10yr down 6.8bps at 4.165 and MBS up 6 ticks (.19).

The National Association of Realtors was looking to reverse the April decision from the D.C. Circuit Court of Appeals that allowed the Justice Department to reopen its probe into the group.