The bond market may be data dependent (it totally is!), but not just any data will do.  You’d be forgiven for thinking that things like “GDP” and “Core PCE Prices” are important enough for the bond market to react.  This is especially confusing due to the fact that one of today’s line items sounds a lot like “Core PCE,” which is indeed one of the Fed’s favorite benchmarks for its inflation target.  We’ll get the more relevant Core PCE tomorrow (even then, it’s not as important as CPI).  Today’s PCE data is part of the GDP data which, itself, is so damn old that it doesn’t even matter anymore (October-December of 2023).  Since we already have almost all the relevant data for January, that’s ancient history and it’s no surprise that markets don’t care.

The “not econ data” pop that followed about 20-30 minutes later was linked to a glut of new corporate bond issuance.  

The week ending February 23 produced the third consecutive period of declining mortgage activity. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, decreased 5.6 percent on a seasonally adjusted basis from one week earlier and was down 3,0 percent before adjustment.   The Refinance Index declined 7.0 percent from the previous week’s level and was 1.0 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 31.2 percent from 32.6 percent the previous week. [refiappschart] The Purchase Index was down 5.0 percent on a seasonally adjusted basis and 1.0 percent before adjustment. Volume was 12.0 percent lower than the same week one year ago. [purchaseappschart] “Mortgage rates were little changed last week, with the 30-year conforming rate declining slightly to 7.04 percent but remaining about a quarter percentage point higher than the start of the year,” said Mike Fratantoni, MBA’s SVP and Chief Economist.  “Higher rates in recent weeks have stalled activity, and last week it dropped more for those seeking FHA and VA refinances. Purchase activity is running 12 percent behind last year’s pace, but our JanuaryBuilder Application Survey results showed that applications to buy new homes were up 19 percent compared to last year. This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume . However, mortgage rates above 7 percent sure don’t help.”

At the TMBA’s Secondary Conference in Houston a topic is obviously interest rates and the economy… And the fact that the nation’s interest payment expense now exceeds our defense expense! It’s also a fact that Texas’ business climate is very friendly for companies. The #1 state in the nation for residential lending, California, not so much. Overheard here in the hallway: “California is a blue state wrapped up in red tape.” That said, permit process aside, California gets a lot of flak for its high cost of living, but that is for income tax rather than property tax, as exhibited in “Property Taxes by State in 2024” comparing home and vehicle taxes across the nation. Californians pay the 34th highest annual taxes on homes priced at state median value. New Jersey, Illinois, and Connecticut have the highest annual taxes on homes. Each year, the average American household spends $2,869 on real-estate property taxes plus another $448 for residents of the 26 states with vehicle property taxes. (Found here after 8:30AM ET, this week’s podcast is brought to you by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products – nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics – unite the people, systems, and stages of the mortgage process. Interview with SoFi’s Liz Young on the need for Treasury auctions and how supply and demand at those auctions impacts consumer interest rates.) Lender and Broker Services, Products, and Software

Wall Street saw another busy session of bond sales as issuers looked to borrow before key economic data later this week.

The U.S. Supreme Court appeared skeptical about arguments made by both consumers and Bank of America in a case regarding mortgage escrow accounts but some experts say they appear to favor state rules preempting national regulations.

Cardinal Financial’s utilization of the FICO alternative credit metric could help pave the way for broader use as Fannie Mae and Freddie Mac move to adopt it.

A rate drop was a common concern for some servicers during the quarter, and Ocwen recently took a step aimed at better addressing this risk in the future.

The lender had previously revealed that personally identifying information from 16.6M customers had leaked, but hadn’t offered these details.

Weird Reaction to Durable Goods, But Generally Slow and Sideways

The economic data drought finally began to dry up this morning with Durable Goods being the first remotely relevant report since last Thursday.  Results were mixed for the bond market with most of the normal line items seemingly being good for bonds. The more obscure “core capital goods shipments” was bad for bonds due to its implications for Q1 GDP.  While that’s not the GDP data coming out this week, it was still enough to reverse the microscopic gains seen in the first minute or two of the trading reaction.  Of course all of the above is much ado about nothing in the bigger picture as bonds must continue waiting for truly meaningful data.  There was similarly uneventful volatility surrounding the 7yr Treasury auction, but yields remained under the prevailing technical ceiling at 4.32%.

Econ Data / Events

Durable Goods

-6.1 vs -4.5 f’cast, -0.3 prev

Durables excluding defense and aircraft

0.1 vs 0.1 f’cast, -0.6 prev

Consumer Confidence 

106.7 vs 115 f’cast, 110.9 prev

FHFA Home Prices y/y

6.6 vs 6.7 prev

Case Shiller Home Prices y/y

6.1 vs 6.0 f’cast, 5.4 prev

Market Movement Recap

12:16 PM A hair stronger overnight, and now a hair weaker after AM econ data (not necessarily because of it).  10yr up 1.6bps at 4.299.  MBS down 2 ticks (.06).

01:46 PM Decent initial reaction to decent 7yr auction, but giving up that improvement now.  10yr up 1.2bps at 4.295.  MBS down 2 ticks (.06).

02:30 PM Weakest levels of the day with MBS down 5 ticks (.16) and 10yr up 2.5bps at 4.307.  

04:00 PM Additional selling just before 3pm, but off the weakest levels now with MBS down an eighth.  10yr up 2.8bps at 4.311 (had been up to 4.321 briefly).

One of the downsides of rates being very close to the highest levels in months is that it doesn’t take much of nudge to hit new highs.  That was ALMOST the case today as the average lender moved just slightly higher compared to yesterday’s latest levels.  The average borrower might not see much of a detectable difference in loan quotes in the past 24 hours, but it was just enough to push 30yr fixed rates very close to the highest levels since November 2023.   There were no interesting or obvious catalysts for the move, nor would we expect there to be when it comes to the level of volatility seen on almost any day of the past 2 weeks.  A top tier, conventional 30yr fixed scenario is now well into the 7% range for the average lender.  While this is still far below the multi-decade highs seen in October, it’s noticeably higher than the end of 2023 when lenders were closer to the 6.625% level. While we’ll have to wait until next week for the most important economic data (the stuff with the biggest chance of causing rates to rise or fall) the next few days provide a few supporting actors.  These economic reports could create a bit more movement than we’ve seen in the past two weeks, but that depends entirely on how far they fall from forecasts.