Bonds are finding their range in a perfectly inoffensive way to begin the new week.  That’s a victory considering a bit of weakness is never a surprise at the start of Treasury auction weeks, but then again, current trading levels represent a modest amount of weakness versus the recent yield lows in late June.  The overnight session was indeed slightly weaker, but domestic traders quickly got things back to “unchanged” after the 8:20am CME open.  There are no big ticket economic reports on tap.  Apart from Fed Chair Powell’s semi-annual congressional testimony (Tue/Wed), there’s not much to do except wait for Thursday’s CPI.

The bank acquired these business purpose non-qualified mortgage loans originated by Civic Financial Services in the PacWest Bancorp deal.

Ongoing challenges from limited inventory levels and elevated prices likely spells little lending momentum this summer, Mortgage Capital Trading said in its latest report.

June housing market data from Redfin found home prices hit a new all-time high. Fortunately, monthly mortgage payments decreased and new listings were up 10%.

The overall Bureau of Labor Statistics number was a tad higher than expected but other indicators point to economic weakness that could lower mortgage rates.

The central bank also noted that the banking system is sound but faces several challenges. The report precedes Federal Reserve Chair Jerome Powell’s upcoming appearances on Capitol Hill.

Orderly, Logical Rally as Bonds Reiterate Data Dependence

Today’s recap isn’t any different than the morning commentary.  The jobs report was demonstrably softer than the previous installment across the board, despite the top line nonfarm payroll count being just a hair higher than expected for the most recent month.  By the time revisions are considered, the labor market trend went from looking alarmingly resilient to predictably softer.  In other words, this is the jobs report trend that conventional wisdom expects with interest rates at these levels. The bond market took the opportunity to calmly confirm its adherence to the Fed’s “data dependent” guidance with an orderly rally of moderately large size.  All in all, it was a perfectly agreeable jobs report day, and one that leaves a blank canvas for next week’s CPI data.

Econ Data / Events

Nonfarm Payrolls

206k vs 190k f’cast
last month revised down to 218k from 272k

Unemployment Rate

4.1 vs 4.0 f’cast, 4.0 prev

Wages

0.3 vs 0.3 f’cast, 0.4 prev

Market Movement Recap

08:47 AM Modestly stronger overnight with additional gains after NFP.  10yr down 6.2bps at 4.298.  MBS up 6 ticks (.16).

11:26 AM best levels of the day.  10yr down 8.3bps at 4.277.  MBS up 9 ticks (.28).

03:20 PM Drifting sideways at best levels, perfectly in line with the previous update.

Before the internet, everything worked fine without it, right? Just ask the members, whether they be depositors or borrowers, of credit union Patelco, the scene of the latest (known) hack attack. Yes, it is a good reminder for companies to continue to beef up their computer systems, and have a plan in place should something happen. It is also a reminder for anyone with their money in a bank or credit union to have some of their money at a different institution. The news isn’t much better for lenders in general: According to Curinos, June 2024 funded mortgage volume decreased 13 percent year-over-year and decreased 5 percent month-over-month. The average 30-year conforming retail funded rate in June 2024 was 7.11, 1bps higher than May 2024 and 66bps higher than the same month last year. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. We drill into this data further here. (Today’s podcast is found here and this week’s is sponsored by Bundle, the attorney-prepared legal documents company that is dedicated to the real estate, mortgage, and title industries. Fuel your operations and execution of documents from deeds to subordinations to assignments, and everything you need for any order, in one bundled price; receive 20 percent off using the code “Chrisman” at checkout. Hear an interview with realtor Clint Jordan on the latest NAR Settlement effects from a realtor’s perspective and ways he is working with loan originators to be more efficient together.)

The average top tier 30yr fixed rate may not be back under 7% just yet, but as of Friday, it is back below the levels seen last Friday.  That fact is at odds with major weekly rate surveys which showed a somewhat significant increase, but those surveys came out before today’s jobs report. Officially known as The Employment Situation, the jobs report is one of the two most important pieces of scheduled monthly economic data in the U.S.  Econ data is always important, but that’s doubly true these days as the Fed and the market waits for confirmation that economic growth and inflation are slowing down enough for the Fed to cut rates.   The market often moves well in advance of the Fed when it comes to rates.  Today’s jobs report wasn’t especially weak, but it represented an obvious downshift compared to last month’s installment.  The bond market agreed as traders pushed yields moderately lower in the AM hours. Bonds dictate mortgage rates.  Falling yields coincide with falling mortgage rates.  Again, today’s move wasn’t big, but it was important in the sense that it leaves the door open for another major economic report to send an even clearer message about progress toward the Fed’s rate cutting goals.  That report–the Consumer Price Index (CPI)–comes out next Thursday morning.

Today’s playbook was fairly straightforward with bonds being likely to move in the direction suggested by the jobs report.  The only challenge would have been the presence of mixed messages (i.e. a big beat in the job count paired with a big miss in the unemployment rate).  While there was indeed a beat in the job count, it wasn’t big.  It was also offset by much larger negative revisions.  Unemployment ticked slightly higher.  Wages hit their forecast of 0.3 vs 0.4 previously.  All told, it suggests more of normalizing labor market with a hint of softening as opposed to a surprisingly resilient labor market indicated by last month’s jobs report.  Bonds like it and have now erased all of the losses seen since last week’s presidential debate.

As a reminder, while there was a lot of attention on the presidential debate as scapegoat for last Friday’s bond sell-off, we were bigger fans of the month-end positioning explanation.