Bonds began the new week with follow-through selling overseas.  Losses were steady and linear in both Asia and Europe.  It’s tempting to chalk up some of the weakness to a big beat in German industrial production data, but Treasury yields were already up to 4.44% by the time the data came out.  The first order of business for U.S. bond traders was to push back in a friendlier direction at 8am, but 10yr yields weren’t able to make it back into Friday’s range.  There are no major econ reports or scheduled events today.  The auction cycle begins tomorrow, but that will be a small supporting actor compared to Wednesday’s CPI.

Despite the recent losses in longer term bonds, the volatility has had little impact on Fed rate expectations (which experienced most of their recent spike in early February.

Since then, a June hike has only seen slim odds and the past 5 weeks have merely been a modest adjustment that makes those odds slightly slimmer.

Logan, whose remarks are closely watched by investors given her prior role managing the central bank’s asset portfolio at the New York Fed, said she’s increasingly concerned that inflation progress could stall out.

Also, Argyle, Two Harbors add mortgage tech experts to boards, Planet Home expands sales team and Calque names its CEO.

The $12.1 billion-asset DCU launched the loan platform in 2022, and has seen volume jump by close to $600 million from when talks began in 2019 to last year.

In a study posted weeks after it raised concerns about “junk fees,” the Consumer Financial Protection Bureau noted that the amount of borrowers paying discount points doubled from 2021 to 2023, with the increase larger among consumers with lower credit scores.

The Justice Department can reopen an antitrust probe into the National Association of Realtors, an appeals court ruled Friday, rejecting a bid by the real estate trade group to enforce a 2020 settlement with the Trump administration to close the case.

Data dependent… That’s a phrase that is all too prevalent in financial markets and among members of the Federal Reserve.  It refers to the fact that economic data will guide the future path of interest rate decisions.   While rates always depend on data, the data outlook isn’t always as uncertain as it has been in the past few years.  At times, we’ve been waiting for inflation and job growth to stop surging.  At other times, we’ve been waiting for them to confirm a move in the other direction.  Either way, there are a few reports that financial markets watch more closely than others and today’s jobs report is one of the best examples. When job growth is higher than expected, the default reaction is for rates to move higher.  The bigger the “beat” (which refers to the actual job count versus the median forecast among multiple economists), the bigger the rate jump tends to be, on average.  With that in mind, today’s payroll count of 303k versus a median forecast of 200k was a big beat!   It was no surprise to see bonds lose ground and rates move higher, but the size of today’s rate increase is much more curious.  The average lender was only modestly higher in rate.  It’s curious, but it may not be incredibly surprising.  Again, it’s all about the data, and although Friday’s jobs report is definitely one of the two most important reports on any given month, next week’s Consumer Price Index (CPI) is bigger.  Today’s resilience could have a lot to do with the market waiting to see those results next Wednesday.

Bond Market Resilience Suggests More Focus on CPI

Up until the 3pm CME close, the bond market was having a surprisingly resilient day relative to the market moving data.  When NFP beats forecasts by 100k (today: 303k vs 200k f’cast), we tend to see big losses.  It was no surprise to see losses, but possibly surprising to see bonds almost back to pre-NFP levels 2 hours later.  Even after the 3pm sell-off, MBS are still in line with yesterday morning’s levels.  That’s better than we’d expect, based on the data and one of the only conclusions is that the market is more anxious to see next week’s CPI on Wednesday.

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

09:36 AM Pretty stable after initial losses.  MBS down 7 ticks (.23) and 10yr up 6.5bps at 4.377.

10:55 AM Decent recovery, but it’s not continuing for now.  MBS down only 5 ticks (.16).  10yr up 5.5bps at 4.369 (briefly made it down to 4.337.

02:28 PM Fairly flat in the PM.  MBS down 6 ticks (.19).  10yr up 6bps at 4.372.

03:17 PM Weakness at 3pm CME close.  MBS down 10 ticks (.31) and 10yr up almost 8bps at 4.391.

I head to Central Texas today (A53 on Southwest; something about maybe seeing an eclipse); statewide Texas home ownership rate is about 64 percent. This is a shade lower than the 66 percent nationwide. (Home ownership & operational challenges facing lenders are a couple of the topics Mike Metz with Arizona’s V.I.P. Mortgage will discuss today at 2PM CT.) And a huge percentage of those homeowners have low fixed rates. People can be “locked-in” or constrained in their ability to make appropriate financial changes, such as being unable to move homes or sell assets due to tax burdens. In the U.S., nearly all 50 million active mortgages have fixed rates, and most have interest rates far below prevailing market rates, creating a disincentive to sell. These frictions, whether institutional, legislative, personal, or market-driven, are a real problem. The FHFA, Fannie & Freddie’s conservator, has a research piece on this since residential real estate exemplifies this challenge with its physical immobility, high transaction costs, and concentrated wealth. (Found here, this week’s podcasts are sponsored by Loan Vision. With Loan Vision, the mortgage banking industry’s premier mortgage accounting solution, you can take your accounting department from “cost center” to “revenue generator,” operating more efficiently and profitably. Hear an interview with HireAHelper’s Miranda Marquit on a new study that shows that as Millennials age, they’re moving less than ever.) Customer Relationship Management

The jobs number came in at 303k this morning versus a median forecast of 200k.  Previous month revisions added a minimal 22k to the 3 month total and unemployment ticked down to 3.8% from 3.9% last month.  Numbers like this demand a sacrifice from the bond market, and the bond market quickly acquiesced.  That said, if we were forced to guess at the size of the sacrifice, it would probably be bigger than the one we’re actually seeing so far today.  In fact, bonds were almost back to pre-NFP levels by 10:30am and MBS have consistently traded a bit higher than yesterday’s opening levels.  Bottom line: yes we’re weaker, but it could be a lot worse.