It Took a Village (Of Econ Data)

Bonds began the day in weaker territory but rallied after the 8:30am econ data.  This wasn’t exclusively a function of Core PCE hitting its forecast, but also drew strength from the higher continued claims number.  Just over an hour later, Chicago PMI came in noticeably weaker and added to the rally.  Gains slowly evaporated throughout the day in a linear trend.  While this left a microscopic improvement on the day it did nothing to push rates/yields out of their exceptionally narrow, prevailing trend.

Econ Data / Events

Jobless Claims

215k vs 210k f’cast, 202k prev

Continued Claims

1905k vs 1874k f’cast, 1860k prev

Core PCE m/m

0.4 vs 0.4 f’cast, 0.2 prev

Core PCE y/y

2.8 vs 2.8 f’cast, 2.9 prev

Chicago PMI

44 vs 48 f’cast, 46 prev

Market Movement Recap

08:54 AM Moderately weaker overnight, but erasing losses after data. 10yr nearly unchanged at 4.266.  MBS down only 1 tick (0.03).

09:52 AM Additional gains after Chicago PMI.  10yr down 1.8bps at 4.246.  MBS up 2 ticks (.06).

01:27 PM Off the best levels, but still stronger.  MBS up 3 ticks (.09) and 10yr down 1.2bps at 4.252.

03:07 PM some weakness heading into 3pm close (month-end).  Still barely positive with MBS up 1 tick (.03) and 10yr down half a bp at 4.259.

04:48 PM Briefly weaker at 4pm, but recovering back in line with the levels from the previous update.

In the bigger picture, mortgage rates would still be best described as “trending gently higher,” but in the shorter term, today was a victory.  The average lender moved from quoting conventional 30yr fixed rates near 3 month highs yesterday to the lowest levels of the week today.  The disclaimer is that this says more about the narrowness of the recent range than the ground covered. Another disclaimer is that you may well encounter mortgage rate headlines that say something completely different today.  This would almost certainly be due to Freddie Mac’s weekly survey number rising to the highest levels in more than 2 months.  Freddie’s survey is an average of the 5 days ending yesterday, nor does it account for points or a few other idiosyncrasies that can cause it to deviate from the reality in the trenches.   That reality is a conventional 30yr fixed rate that remains in the low 7% range for top tier scenarios.  If someone were to pay discount points or receive a relatively more aggressive quote, the high 6% range isn’t out of the question.  It’s just not “average.”  Today’s improvement was ostensibly driven by the bond market’s reaction to hotly anticipated inflation data.  There is indeed a case to be made that the as-expected reading on PCE inflation helped rates recover today, but other economic data was also helpful (jobless claims and Chicago PMI). Ultimately, today’s data is not what the market is truly waiting for.  The most important reports hit next week, culminating with Friday’s big jobs report.  The following week’s Consumer Price Index (CPI) is at least as important.  More than anything, those two reports will shape the dialogue in financial markets and the Fed meeting that takes place the week after CPI.

Today’s most hotly anticipated data was undoubtedly PCE inflation for January.  In fact, this is the report that became the subject of our focus and anticipation immediately following the last CPI on Feb 13.  That said, it only deserved focus because it was the best stop-gap data option between CPI and the next NFP on March 8th.  Today, it is proving its merit… maybe.  It’s actually hard to assign it too much credit for leading a reversal of overnight weakness because a big jump in continued jobless claims (highest since a spike in November that looked like an outlier at the time) arguably deserves some credit.  We even had a noticeable reaction to Chicago PMI later in the morning.  

One reason for giving Jobless Claims closer consideration is that today’s PCE data ran 10-30 seconds late depending on traders’ preferred delivery platform.  That allowed us to see the Claims data having an impact in a vacuum during that time, and a majority of the initial gains were already in by the time we saw PCE come through.  The additional drop in yields on the Chicago PMI data is possible evidence that the market is hungry for economically downbeat data.  It’s a bit more pronounced than we’re used to seeing for this report, and it would be a surprise to see as much selling if today’s number had beaten the forecast by as much as it missed.

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Small Scale Volatility But Very Sideways Overall

There were a few instances of volatility in the bond market today with several of the larger moves lining up with larger doses of volume.  In a “data dependent” world, it’s odd to consider that none of the notable moves had anything to do with economic data.  Instead, it was a surge in corporate bond issuance around 9am causing some selling and the 3pm close causing some buying.  And EVEN THEN, those events added up to a pittance of activity and drama.  Bonds managed to clock modest gains, but that only served to solidify the sideways trend that’s been in place since the Feb 13 CPI data.

Econ Data / Events

Q4 GDP (revision)

3.2 vs 3.3 f’cast

GDP PCE Price Index

2.1 vs 2.0 f’cast

Wholesale Inventories

-09.1 vs 0.1 f’cast, 0.4 prev

Market Movement Recap

08:58 AM Modestly stronger overnight. No reaction to data.  Giving up some gains now.  10yr still down almost 1bp at 4.295.  MBS up 2 ticks (.06).

11:42 AM Little changed from previous update after some initial volatility.  10yr down 1.2bps at 4.291.  MBS up 3 ticks (.09).

03:27 PM Stronger during the 3pm CME close (month-end).  10yr down 3.5bps at 4.268.  MBS up a quarter point in 5.5 coupons and an eighth in 6.0 coupons.

Despite the release of economic data that sounds like it should matter to markets (mainly “GDP”), the bonds that drive interest rates had a remarkably calm day on Wednesday.  This is the latest in a series of mostly remarkably calm days for just over two weeks now. The timing makes sense.  The most recent CPI report (the Consumer Price Index) was released just over two weeks ago and it send rates significantly higher.  Indeed, yesterday’s average conventional 30yr fixed rate matched its highest level in roughly 3 months yesterday, thus making today’s microscopic improvement a rather hollow victory. As for GDP, it’s no surprise to see markets look past that data.  Not only is it too broad to deliver the most needed cues, it also happens to be quite stale.  After all, today’s GDP release is still looking back to Oct-Dec, 2023.  That will STILL be the case when it comes out next month.  In other words, it’s the biggest, most stale report card on the US economy.  The investors who are making the trades that move interest rates are infinitely more focused on things like the big jobs report out next Friday or CPI the following week.