No New Inspiration Ahead of Thursday’s CPI

We’ve officially run out of ways to characterize the boring, sideways grind in the bond market that’s been intact since last Friday afternoon.  One would think that with Fed Chair testimony and a Treasury auction cycle that we’d at least some moderate volatility, but alas!  Perhaps the market is saving it all for Thursday’s CPI.  For those that have to know what happened today, there was a 10yr Treasury auction.  It was well-received but not stellar enough to inspire any new buying.  Fed Chair Powell reiterated the same messages as yesterday and markets cared even less.  As always, CPI means rates could go either way, in a big way.

Market Movement Recap

10:06 AM Modestly stronger overnight but giving back some gains into the 10am hour.  MBS up 1 tick (0.03) and 10yr down 1.2bps at 4.285.

01:06 PM 10yr auction was pretty good.  No major reaction.  10yr down 1.8bps at 4.278.  MBS up 3 ticks (.09).

03:54 PM Flat and boring all  day.  10yr down 1.8bps at 4.279.  MBS up 2 ticks (.06).

The most recent sideways slide began just before noon last Friday.  Bonds had rallied in response to the jobs report with 10’s closing at 4.29%.  Since then, there hasn’t been more than 4bps of movement in either direction, and the range has been even narrower 95% of the time.  Part of the reason is the absence of new inspiration.  Since the jobs report, there haven’t been any massively actionable economic reports or calendar events.  Today’s calendar is similarly light.  The 2nd day of Powell testimony is unlikely to offer any new insights and the 10yr Treasury auction–while a bit of a wild card for short term volatility–won’t impact the big picture with the all-important CPI on deck tomorrow morning.

“The only time I get asked for sex is on application forms.” Ba-dum-ching! Speaking of applications, most lenders will agree that the loan officer should be the first point of contact for a home buyer, not the real estate agent. But over the years real estate agents have done a great job of becoming the starting point of a homebuyer’s quest. But heck, how much house can they afford, what with current rates, homeowner’s insurance, utilities, etc.? Yes, good originators know the psychology of their clients under the “Know your borrower” basic tenant, especially first time home buyers: most homebuyers remain homeowners and the FHFA tells us that the persistence has increased over time across all homeowner demographics like race or ethnicity, regions of the country, and mortgage lending submarkets. (Today’s podcast is found here and this week’s is sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender, uniting the people, systems, and stages of the mortgage process. Hear an interview with attorney Peter Idziak on last week’s Supreme Court vote to overturn the Chevron doctrine that called on judges to rule in favor of government agencies in instances where the law is ambiguous, and its impact on the mortgage industry.) Lender and Broker Software, Services, and Products Curious about what’s new in Encompass® by ICE Mortgage Technology®? ICE recently shared an article which dives into new innovations within the platform that are enabling the lending community to improve both productivity and efficiency. Read the full article here.

Mortgage rates have been in a narrow range for more than a month now with the average top tier 30yr fixed rate staying within striking distance of the 7.0% mark for the entirety. The number was 7.01 yesterday and it’s down to 6.99 today.  This matches the level last seen on June 14th and you’d have to go back to March to see anything much lower. Despite the incredibly uneventful performance of the past month, rates face another opportunity for (or “threat of”) a much bigger change tomorrow.  The direction of the move will depend entirely on the results of the Consumer Price Index (CPI). CPI is the most important economic report as far as rates are concerned because it’s the first major look at inflation data on any given month and inflation is the biggest problem for rates at the moment.  Looked at another way, the Fed has repeatedly communicated that rate cuts will happen when CPI suggests inflation is decidedly heading back to 2.0% in year over year terms.  The last CPI was a step in the right direction.  If tomorrow’s follows suit, the conversation about rate cuts would get serious. The Fed doesn’t directly dictate mortgage rates, but the entire rate market tends to react to the same things the Fed says it will react to.   As always, keep in mind that data can go both ways.  If CPI shows higher inflation than expected, rates could move higher just as quickly as they could drop.  Last but not least, there’s always a chance that the data and the market’s reaction to it can be balanced enough to “thread the needle” (i.e. another day without much change in rates).  

Mortgage applications declined slightly on a seasonally adjusted basis last week but plummeted on an unadjusted basis during the July 4th week. The week’s results include an additional adjustment to account for the holiday. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, decreased 0.2 percent on a seasonally adjusted basis from one week earlier but lost 20.0 percent before adjustment.   The Refinance Index decreased 2.0 percent from the previous week but was 28.0 percent higher than the same week one year ago. The refinance share of mortgage activity decreased to 34.9 percent of total applications from the previous 35.7 percent. [refiappschart] The seasonally adjusted Purchase Index managed a 1.0 percent gain while the unadjusted Purchase Index dropped 19.0 percent.  The purchase index was 13.0 percent lower than the same week one year ago. [purchaseappschart] “The recent uptick in mortgage rates has slowed demand. Mortgage applications were essentially flat last week, as mortgage rates remained around 7 percent,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase activity picked up slightly, driven primarily by increases in FHA and VA applications. Refinance applications decreased for the fourth consecutive week, in line with higher rates. Although home equity gains have been significant in recent years, most borrowers do not have much of an incentive to refinance at current rates. ”

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