Rates are “data dependent” and the two biggest pieces of economic data are CPI and the big jobs report.  Neither are on today’s calendar, but there was an anecdotal indicator for the jobs report in the form of weekly jobless claims.  This usually forgettable, but if there was one week of the month to pay attention, it would be when the report covering the 12th of the month comes out.  Why the 12th?  The survey for the big jobs report (BLS Employment Situation / nonfarm payrolls) is conducted on the week that includes the 12th.  With that in mind, the bond market did a good job of overlooking a stronger result this morning and actually took solace in S&P PMI data just over an hour later.  Despite the recovery, yields are edging back into slightly higher territory heading into the PM hours (for reasons unknown).

This weakness is occurring at unfortunate levels as some might see it as a failure to find support at the 4.32% ceiling.  It’s still too soon and too close to call in the bigger picture, however.

Did someone say, “National Margarita Day”? (Splendid timing, especially as vendors and lenders contemplate a rate and volume environment that may not change much for months, and compensation & personnel adjustments continue.) In 2023, the United States was the leading recipient of Mexico’s tequila exports, importing 84.8 million gallons of tequila from South of the Border. This has nothing to do with residential lending, other than plenty of folks in our biz enjoy a tasty margarita. While we’re on taste, the other day I mentioned a joke about vultures saying clowns taste funny which blog poster and attorney Brian Levy took as an invitation to “poke a little fun at this bear” in his most recent post. Levy’s most recent Mortgage Musings edition is titled, LO Comp, Bozo Buckets and “P&L Branches” and offers a spirited and insightful discussion of a couple LO Comp related issues that have been in the news (including this daily commentary). (Found here, this week’s podcast is sponsored by Truv. Truv lets applicants verify income, employment, assets, insurance, and switch direct deposits. Unlock the power of open finance, with Truv. Today’s has an interview with PRMG’s Kevin Peranio and Truv’s Richard Grieser on verification across income, employment, assets, and insurance.) Lender and Broker Services, Products, and Software “As rates decreased in January, IMBs saw an increase in dwell-time and warehouse expenses. In January, dwell-time was up 3 days from the 15-day average. While rates are down for borrowers, overnight SOFR rates averaged 5.32 percent. With the additional 3 days of dwell, for the average IMB costs increased by nearly $70 per funded loan, a 170 percent increase from December. With full automation from funding of loans through Purchase Advice reconciliation and paydown activities, OptiFunder now offers the most comprehensive Warehouse Management System available, allowing originators to get loans from the primary to the secondary markets quickly and efficiently. Top IMB’s are using funding automation to save time and capital. Meet with us at Lenders One Summit or at the ICE Experience to see how you can streamline funding through loan sale to lower dwell and warehouse expense. Sign up for our monthly newsletter for more warehouse trends.”

Data used to determine the non-QM and prime jumbo numbers represent 75% of securities in each respective loan segment, the companies said.

Since mid-January, “we have seen a meaningful uptick in demand that has continued through this past weekend,” Toll Brothers Chief Executive Officer Doug Yearley said in an earnings call Wednesday.

The Federal Housing Administration’s new foreclosure prevention strategy starts soon and a Department of Veterans Affairs option is getting final approvals.

The world’s largest credit union said that Dietrich Kuhlmann, a retired rear admiral and currently the institution’s chief operating officer, would succeed retiring CEO Mary McDuffie on March 1.

Ahead of Sprout’s bankruptcy, at least $27 million was transferred from its accounts to entities owned by Michael Strauss and accounts for his family, a new filing alleges.

Rates Testing Ceilings After Bond Auction and European Weakness

Bonds managed to start the day in modestly stronger territory, but it’s just as fair to say “sideways.”  Things didn’t start moving until after 10am when European bond market weakness spilled over to Treasuries.  Yields drifted several bps higher into the 20yr bond auction and popped to the highs of the day after the lackluster auction results came out.  The 4.32+ ceiling remained intact despite a bit of volatility surrounding the release of what was a mostly uneventful reading of the Fed Minutes.  If the proof is in the pudding, consider that Treasury volumes were much higher after the auction than the Fed minutes, and the latter only caused about 1bp of movement.  Translation: the Fed Minutes contained no surprises. 

Market Movement Recap

09:57 AM Modestly stronger overnight despite weakness in EU bond market.  10yr down half a bp at 4.27.  MBS up 2 ticks (.06).

12:06 PM 2 mini waves of selling into the PM hours.  MBS down 5 ticks (.16) and 10yr up 2.8bps at 4.303.

01:07 PM Sloppy 20yr auction.  10yr up 4.8bps at 4.323.  MBS down a quarter point.

02:49 PM Sideways after Fed minutes, but losing some more ground into 3pm close.  10yr up 5.4bps ta 4.329.  MBS down 9 ticks (.28).

In the short term, mortgage rates haven’t experienced any extreme movement since earlier in the month, but a slow trickle of weakness is starting to add up.  As of last Friday, the average 30yr fixed rate was as high as it’s been since late November.  There was a modest recovery yesterday, and it has now been erased by today’s market movement. In other words, the average lender is now back in line with last Friday’s rates–the highest since November 30th, 2023. That’s the bad news.  The good news is that those rates are still almost a full percent lower than the long-term highs seen in October. Good, bad, or indifferent… where we’re going is more interesting than where we’ve been.  That itinerary is constantly evolving based on incoming economic data and other events.  The biggest influences are still several weeks away.  We’re just watching fine-tuning adjustments in the meantime. 

Bonds had a generally constructive day to start the holiday-shortened week yesterday, with yields rallying in the morning and ultimately holding modest gains after some afternoon weakness.  Today looked to be off to a similarly constructive start, but the selling pressure has shown up a bit earlier.  Who’s to blame? The easiest scapegoat is simply the bigger selling pressure in Europe where Bund yields are up 7bps from the lows. 

If we want to jump to conclusions, we could also consider some trepidation ahead of this afternoon’s Fed Minutes, but it would still be a surprise to see any new ideas brought to light in that venue.  Blame aside, none of today’s movement matters in the bigger picture as long as we remain inside the “triangle” that’s been forming between the 4.32 highs and the uptrend of the past two weeks.