Mortgage rates roughly matched their highest levels in months yesterday, but managed to turn things around today.  One could argue that the broader bond market (which dictates rates) began to turn things yesterday morning and that the only reason rates moved higher was the overnight bond market movement.   So today was either a new recovery or a continuation of yesterday’s recovery, but none of that matters now.  Wherever we may be this afternoon, we may be somewhere completely different tomorrow afternoon.  While that’s true every day the market is open, it’s a much bigger version of true today. Why? Tomorrow morning marks the release of the Consumer Price Index (CPI).  Of all the monthly economic reports, this one has the most potential to cause volatility for rates.   Is volatility bad or good?   It’s important to understand that volatility is a two way street.  A very low reading on CPI would likely push rates much lower while a very high reading would do the opposite.  Additionally, it is also possible for the data to thread the needle and leave rates roughly unchanged, but the point is that the range of potential outcomes is much wider than normal.

The overnight session was generally a mirror image of yesterday’s with 10yr yields moving several bps lower in a linear, steady trend.  Unlike yesterday, 8am didn’t bring an obvious reversal.  

While this stronger start is “nice,” it’s meaningless in the bigger picture.  Apart from a truly astonishing surprise, nothing about today can change the fact that bonds are roughly in line with their weakest levels in months ahead of a CPI report that will either result in more weakness or a decent bounce. And EVEN THEN, it may not be enough to coax yields outside the boundary of 2024’s linear uptrend.  The outer lines in the chart below (2 standard deviations away from a linear regression) are at roughly 4.53 and 4.18.  It would take a big reaction to CPI to get to either boundary.

Today’s 3yr Treasury auction is the only calendar item of note (pun intended).  It’s capable of introducing some noise in the afternoon, but not much.

The new expiration for waivers, which is now set for a date after November, adds uncertainty about the fate of a proposed policy that would replace the temporary, pandemic-era servicing rules.

The appellate court decision allowing the Justice Department to reopen an investigation into the National Association of Realtors is likely to disrupt the Sitzer/Burnett settlement, Keefe, Bruyette & Woods said.

UWM’s CEO Mat Ishbia says the Hunterbrook story, which claims his company committed several serious violations, was funded by Rocket. Rocket denies the allegations.

The top five states have an average effective real-estate tax rate of 2.02%

The surprisingly strong U.S. economy has driven Treasury yields to the highest since late November as investors dial back bets on interest-rate cuts, wagering that policymakers will be wary of easing policy prematurely.

Uneventful, Sideways Day After Initial Losses

Today had the dubious distinction of seeing the highest yields in more than 4 months while also being uneventful and largely sideways in terms of bond market momentum.  The steeper losses were limited to the overnight session with 8am bringing a quick but shallow correction.  Bonds were back to levels that would only be considered modestly weaker by 10am and the rest of the day was spent drifting sideways in the same territory.  There were no standout market movers, news headlines, or Fed comments.

Econ Data / Events

Nonfarm Payrolls

303k vs 200k f’cast, 270k prev

Unemployment Rate

3.8 vs 3.9 f’cast, 3.9 prev

Earnings

0.3 vs 0.3 f’cast, 0.2 prev (revised up 0.1)

Market Movement Recap

09:33 AM Follow-through selling overnight with 10s opening as high as 4.463.  Now up only 2.5bps at 4.427.  MBS down an eighth after opening down more than a quarter point.

11:51 AM Rally stalled.  MBS an eighth off highs and 6 ticks (.19) lower day over day.  10yr down 2.4bps at 4.425

02:18 PM bouncing back a bit heading into the 2pm hour.  MBS down only an eighth.  10yr up 1.1bps at 4.413

04:28 PM Gliding flat into the 5pm close.  MBS still down an eighth.  10yr up 1.9 bps at 4.421.

Mortgage rates moved up somewhat abruptly today as the bond market lost more ground over the weekend.  Rates are driven primarily by bonds, but mortgage lenders tend to only update rates once per day unless the bond market is moving very quickly. With that in mind, bonds were losing ground on Friday afternoon, but not quickly enough or early enough for a majority of lenders to adjust pricing.  As such, lenders already had some catching up to do regardless of today’s bond market weakness.  The combination of the two factors (the “catch-up” and the new weakness) caused today’s spike to be bigger than average. That said, there weren’t any compelling news headlines or economic reports driving the weakness.  It would be better thought of as a hangover from Friday’s jobs report. As the week progresses, there will certainly be at least one major economic report with a proven track record of causing big reactions in rates: the Consumer Price Index (CPI) on Wednesday morning.  With the average lender already near the highest levels since February, a bad reaction to CPI could easily launch rates back to levels not seen since November.  On the other hand, if CPI manages to come in much lower than expected, rates would almost certainly drop.

“A fine is a tax for doing wrong. A tax is a fine for doing well.” April 15th is in a week, the traditional date when taxes are due. Time flies. Do you realize that we have seven more months until the election? Seven more months of headlines and gaffes, posturing, missteps, and election trivia (like no Republican has been elected to the White House by a majority of Americans since 1988). I’m glad residential lending continues to motor along, albeit at a very moderate pace. Politics can determine the regulatory environment, and this Wednesday’s L1 “Mortgage Matters: The Weekly Roundup at 11AM PT has Kathy Kraninger, former director of the CFPB from 2018 to 2021, now CEO of the Florida Bankers Association. (Found here after 8:30AM ET, this week’s podcasts are sponsored by PHH Mortgage. From subservicing to correspondent lending, MSR/co-issue transactions, portfolio retention, reverse mortgages, and commercial servicing, PHH has solutions for the entire mortgage lifecycle. Hear an interview with Figure Technology Solutions Jackie Frommer on disrupting the industry by leveraging proprietary technology and a deep partnership network.) Lender and Broker Products, Software, and Services A few hours from now, for the first time in nearly seven years, a total solar eclipse will cross the continental United States. Though the time between eclipses varies (it’ll be 2044 before the next one visits the contiguous 48 states) science assures us the choreography of our sun and moon is both cyclical and predictable. If only mortgage interest rates were as reliable! This week on Dark Matter Technologies’ ‘The Spotlight’ podcast, The Mortgage Collaborative President Melissa Langdale shares highlights from her co-op’s recent conference, including ways lenders are leveraging technology to make their processes and workforces more adaptable to our cyclical (but often unpredictable) market. Take 20 minutes and listen to the episode today!