Friday’s only scheduled economic report is the Conference Board’s Leading Economic Indicators (LEI) index.  It is not considered a timely market mover and it had no impact this morning despite coming in at -0.6 vs -0.3 forecast.  The slate of scheduled data isn’t much better next week.  The only report with a track record of significance is the S&P PMIs on Thursday, but just the “flash” version (the “final” numbers come out the same week as ISM PMIs in early June). That means next week is nothing but Fed-speak, and since the Fed has had nothing new to say for months, that means next week is nothing.  Combine it with the official 3.5 day Memorial day weekend, and another 3 days (today + this weekend) and bonds have an unofficial 11 day weekend.
But what does an 11 day weekend actually mean in this context?  After all, it’s not as if the bond market will actually be closed next week.  We’re also not suggesting a complete absence of bond market movement.  While we may be a bit jaded on predictable Fed speeches, an anxious market could still jump to conclusions if certain Fed speakers make comments that have a direct bearing on potential changes in June’s dot plot (the summary of Fed members’ projections for the Fed Funds Rate).
To underscore the absence of excitement surrounding the Fed’s outlook right now (and the reason we don’t really care about an extremely active slate of Fed speakers next week), consider the following chart which overlays Fed Funds Rate expectations with longer term bond yields.  Here in the mortgage market, we pay more attention to longer term yields and there’s been a good amount of movement there over the past 2 weeks.  But the Fed outlook hasn’t changed much since the April 10th CPI data (small pop on PCE data at the end of April and a small recovery in the first week of May).

The agency seeks the public’s thoughts on how the regulatory statement governing FHLBanks could better reflect the part they play in housing finance.

Late payments on VA loans were up markedly within the first quarter, in contrast to other products, according to new Mortgage Bankers Association data.

The assistance is available for borrowers with sub-620 FICO scores with earnings less than 80% of the Area Median Income, or first-time home buyers with no restrictions.

Housing starts increased 5.7% to a 1.36 million annualized rate after downward revisions to prior months, according to government data released Thursday.

For the second consecutive week, rates for the 30-year fixed rate mortgage declined as the Consumer Price Index report was better than expected.

Gradual Weakness All Day And a Quieter Calendar Ahead

Today brought the last of the scheduled economic data until the end of next week.  Even then, the data won’t be too relevant for at least 2 weeks when the next PCE price index comes out.  Ironically, we’ve always considered Import Price data to be in the “not too relevant” category, but it appears to have challenged that notion today, thanks in large part to the massive gap versus expectations (0.9 vs 0.3). With that, a number usually disregarded as noise was suddenly worth a small bump in forecast for PCE.  Initial weakness was modest and it leveled off quickly, but the rest of the day saw a slow, directional leak that left MBS down a quarter point.

Econ Data / Events

Jobless Claims

222k vs 220k f’cast, 232k prev

Philly Fed Index

4.5 vs 8.0 f’cast, 15.5 prev

Import Prices

0.9 vs 0.3 f’cast, 0.6 prev

Building Permits 

1.44m vs 1.48m f’cast, 1.467m prev

Housing Starts

1.36m vs 1.42m f’cast, 1.287m prev

Industrial Production

0.0 vs 0.1 f’cast, 0.1 prev

Market Movement Recap

08:35 AM modest losses after data.  10yr still down 0.2 bps on the day at 4.339 and MBS down 2 ticks (.06).

11:01 AM MBS right in line with previous update (down 2 ticks or 0.06) but 10yr now up 1.8bps at 4.358.

02:33 PM Additional weakness now with MBS down roughly a quarter point on the day and 10yr up 3.6bps at 4.376

04:41 PM Still near the weakest levels with MBS and Treasuries unchanged versus the previous update.

On the average day in the mortgage market, the average lender will offer the same mortgage rate terms for the entire day.  It’s only when the underlying bond market moves enough that lenders will make mid-day adjustments.  Today was one of those days and it involved a reprice to slightly higher levels. For now, this is still fairly inconsequential.  Apart from yesterday (or this morning, for that matter), the average lender would still be at the lowest levels since early April.  Instead of being a hair below 7%, the average top tier conventional 30yr fixed is now a hair above. Today’s bond market weakness began after this morning’s Import Price data came out much higher than expected, but it continued at a gradual pace through the rest of the day.  This could suggest that the stronger vibes from Wednesday’s inflation data have run their course and the rate market will now consolidate as opposed to make additional improvements.

It’s the day after the CPI data and thus begins a concerted effort over the next few weeks to avoid compiling every piece of commentary as a simple countdown to the next CPI.  To be fair, we will avoid some of that temptation by counting down to the first week of June with its more robust economic calendar and by the time we get through the jobs report on June 7th, it will be perfectly logical to move on to CPI anticipation.  But for now, Memorial Day market closures may as well start early. 
Bonds are little-changed from yesterday with modest gains turning into modest losses after the 8:30am econ data.  No one should read anything into the level of weakness seen so far today as it leaves trading levels easily inside yesterday’s post-CPI range.  If there’s one report to blame for the push-back this morning, it would have to be Import Prices. That’s a break from the norm (it essentially never has an impact), but this one was exceptionally far from the forecast at 0.9 vs 0.3.

The latest data on new residential construction from the U.S. Census Bureau paints a somewhat mixed picture of the housing market. While housing completions surged in April, Housing starts only increased modestly and building permits declined both building permits slipped to the lowest level since last summer. The following bullet points break down the numbers in seasonally adjusted annual rates for the 3 phases of construction:
Building Permits 

1.44 million versus 1.48 million forecast and 1.467 last month
Of that, 976k were single family permits and 408k were 5+ units

Housing Starts (breaking ground phase)

1.36 million versus 1.42 million forecast and 1.29 million last month
last month revised down from 1.32 million
Of that, 1.031 million were single family  and 322k were 5+

Housing Completions

1.62 million versus 1.495 million last month, a 10.3 percent increase
Of that, 1.092 were single family and 516k were 5+

We could attempt to over-analyze the month to month changes in this notoriously noisy data series, but in the bigger picture, permits and starts have been flat for more than a year while completions continue to improve. Zooming out a bit more, the takeaway isn’t much different, but it adds context from the previous highs and also shows starts and permits remaining near pre-covid highs.