Mortgage rates are based on movement in the bond market and bonds haven’t been moving much over the past 3 days.  That’s resulted in very little change in the average mortgage rate from one day to the next, and zero change today.   Bonds can be inspired by a number of events and data points.  In the past, scheduled congressional testimony with the Fed Chair has been just such an event, but it was not a major consideration today.  Fed Chair Powell reiterated the same messages heard from multiple Fed speakers. The most basic and important message about interest rates is that they depend on economic data.  Some data is more important than other data in that regard and Thursday’s Consumer Price Index (CPI) is arguably the most important.  With that in mind, it’s not hugely surprising to see bonds and rates holding a more narrow range as they wait to see the outcome of CPI.  Some movement between now and then is certainly possibly, but after CPI comes out, movement is all but guaranteed, for better or worse.

MBS Outperform. Powell Punts. Waiting on CPI

Bonds showed slightly more notable signs of life this morning when compared to yesterday, but yesterday was all but dead.  The volatility surrounded Fed Chair Powell’s congressional testimony but had more to do with what didn’t say as opposed to what he said.  Specifically, he didn’t express incremental excitement or expectation about econ data justifying a rate cut any time soon, instead leaving it up to the same old “data dependent” mantra.  Bonds had perhaps been hoping for a bit more dovishness.  Even so, trading levels returned to pre-Powell levels by the close.  10yr Treasuries logged a small increase in yield while MBS improved modestly.  Some of that is driven by the yield curve (shorter maturity Treasuries improved and MBS act more like 5s than 10s these days).  Either way, the focus is even more firmly on Thursday’s CPI as far as bond market inspiration is concerned. 

Market Movement Recap

11:47 AM Modestly weaker overnight with additional losses during Powell testimony.  Mainly an issue for Treasuries.  10yr up 4.4bps at 4.324.  MBS down 2 ticks (.06).

01:26 PM MBS roughly unchanged.  10yr up 3bps at 4.31%

03:32 PM Still sideways with modest MBS outperformance.  10yr up 1.4bps at 4.294.  MBS up 2 ticks (.06).

The new week is one day less new today, but no less sideways so far.  Yields rose microscopically in the overnight session, but even that is a generous assessment considering the range in the 10yr was less than 3bps.  Domestic hours are off to a sleepy start with yields in an even narrower 1bp range (essentially 4.29 to 4.30).

MBS have been a bit more willing to move with 6.0 coupons back into positive territory after a weaker start. 

The Treasury yield curve helps explain the outperformance with 2yr yields unchanged and 10yr yields up 1.5bps on the day. 

Against this boring backdrop, there’s nothing to do but wait to see if Powell has something interesting to say in the 10am congressional testimony.  Apart from that, the Treasury auction cycle is another source of potential volatility starting at 1pm, but tomorrow’s 10yr auction is far more capable than today’s 3yr auction in that regard.

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Uneventful Monday Leaves Bonds Little Changed

It was a quintessential summertime Monday to start the new week.  Trading volumes were exceptionally light and volatility wasn’t far behind.  Most of the movement happened right at the 8:20am CME open with Treasuries quickly repairing some incidental overnight damage.  The 9:30am NYSE open saw a quick pop and drop, but from there, it was super sideways for Treasuries and especially MBS.  Both ended the day in effectively unchanged territory vs Friday.  Uneventful days become less likely from here on out due to Treasury auctions, Powell Testimony, but most importantly, Thursday’s CPI data.

Market Movement Recap

08:48 AM Initially weaker overnight, but bouncing back in early domestic trading.  MBS up 2 ticks (.06) and 10yr down 0.4bps at 4.277

11:58 AM Off the best levels slightly.  MBS now unchanged and 10yr up half a bp at 4.287

03:27 PM Very sideways with MBS up 1 tick (0.03) and 10yr down almost 1bp at 4.273

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Apart from July 1st, mortgage rates have fallen every day so far this month.  The counterpoint is that only adds up to 4 business days so far.  The other counterpoint is that the improvements have been fairly modest over the past two days with the average borrower still likely to be quoted the same interest rate seen on Friday.  The average top tier conventional 30yr fixed rate remains just a hair over 7%.  If that’s to change in a meaningful way, it would likely involve this Thursday’s Consumer Price Index (CPI) data.  CPI has been the most important input for rates as far as economic reports are concerned.  Thursday’s is an exciting installment as it has a chance to confirm a promising shift seen in last month’s data. If confirmed, rates should move easily into the 6’s. Between now and then, there are other potential sources of volatility, including 2 days of Congressional testimony from Fed Chair Powell.  But CPI is ultimately a much bigger consideration than anything Powell might say.