Mortgage rates were crushed by today’s jobs report.  Nonfarm payrolls (the main component of the report), came in  significantly higher than expected (353k vs 180k forecast) and were revised up significantly for December (333k versus 216k previously). January’s jobs data (the stuff released today) is often plagued by major departures from expectations because it’s the one month of the year where the Bureau of Labor Statistics (BLS) implements new benchmarks based on a comprehensive count of jobs conducted in March of the previous year.   To understand this better, consider the changing composition of jobs over time.  BLS adjusts job counts based on how big a percentage a certain industry accounts for. Let’s imagine social media were invented overnight and thousands of people quit regular jobs to become social media influencers.  Because there wouldn’t be any track record of “social media influencer” in the BLS benchmarks in the first year, it would look like a lot of people lost jobs and didn’t find new ones.  Then when BLS does the full count in March, they’d find that influencers were prevalent and the numbers would be revised.  If you’d like to see the actual changes in each industry category, BLS publishes the data here: https://www.bls.gov/web/empsit/cesprelbmk.htm  Benchmark revisions, alone, don’t explain the wild results today, but they help explain why results have been a bit more wild than their normal range amid the changing landscape of the post-pandemic economy.  The more rapidly the composition of the economy changes, the more we’ll see volatility like this in the numbers.  

Was The Jobs Report Real and What Are The Lasting Implications?

Is Friday’s NFP number of 353k versus a 180k forecast “real?” Or is it some distortion created by the annual benchmark revision process?  Yes and no.  Smart, credible market participants don’t even entertain the notion of intentional manipulation. That said, they’re well aware of unavoidable distortions, and today’s payroll count qualifies.  That’s not to say the job gains weren’t “real,” but NFP overstated the resilience of the labor market.  That’s why yields are still much lower than they were last week.  Why are they so much higher than yesterday, then?  Partly because yesterday capped an aggressive snowball rally that was built on a shaky foundation.  The only truly solid foundation will be a sustained return to 2% inflation, and the only thing that would predispose traders to believe in that return any faster would be an obvious deterioration in the data.  At the very least, today’s jobs report is anything but a deterioration.

Econ Data / Events

Nonfarm Payrolls

353k vs 180k f’cast
last month revised to 333k from 216k

Unemployment Rate

3.7 vs 3.8 f’cast

Earnings

0.6 vs 0.3 f’cast, 0.4 prev

Nonfarm Payrolls

353k vs 180k f’cast
last month revised to 333k from 216k

Unemployment Rate

3.7 vs 3.8 f’cast

Earnings

0.6 vs 0.3 f’cast, 0.4 prev

Market Movement Recap

09:43 AM Much weaker after strong jobs report.  MBS down 3/8ths.  10yr up 11bps at 3.993

11:18 AM More weakness in Treasuries.  10yr up 16bps at 4.043.  MBS down half a point.

03:06 PM Weakest levels of the day around 1pm and recovering slightly since then.  MBS down just over half a point and 10yr up 14.7bps at 4.031

It’s not really an exaggeration to say “no one saw it coming” with respect to this morning’s jobs report.  NFP hit 353k versus a forecast of 180k.  100k+ beats happen, but not enough for economists to set their forecasts at those levels.  Add to that the fact that revisions jacked up the past few months by a significant amount and it’s no surprise to see bonds swooning.

While this is indeed a very large one-day sell-off, it’s also been a very large rally week for bonds.  It doesn’t feel like it today, but yields are still lower week-over-week.  The true test will be the next few weeks and especially the next CPI release (week after next).

Although he is correct less than half the time, groundhog Punxsutawney Phil didn’t see his shadow this morning, meaning an early spring is likely. At the other end of the “cute spectrum,” Elon Musk is increasing his control of the roads with Tesla, in internet communications with his Starlink satellites, access to outer space via SpaceX, and now… people’s brains through neural implants. It appears that we’re living in a science fiction novel… and we know how those typically end. Yes, his compensation made headlines this week, but he’s obviously in it for “the long game.” Mr. Musk can work from anywhere, but what about you? Are you back in the office after the pandemic from years ago? Plenty of LOs, AEs, and commentary writers have always worked remotely, but others, not so much. Here’s something to add some fuel to the debate: more proof from the University of Pittsburgh that RTO (return to office) mandates are pointless and don’t help productivity. (More below.) Today’s Commentary podcast can be found here and this week’s is sponsored by Calque. With The Trade-In Mortgage powered by Calque, lenders help their clients negotiate a lower purchase price, reduce their interest payments, and eliminate PMI. For something different, hear attorney Brian Levy interview Robbie Chrisman about his life outside of mortgage. Lender and Broker Software, Products, and Services “Transform your business by serving Active-Duty Military and Veterans with VA Loans and elevate your expertise as a Certified Military Home Specialist today! Our comprehensive 2-hour self-paced Basic Training equips loan officers, realtors, and housing professionals with invaluable insights into navigating the particularities of military borrowers’ needs. This course delivers the essential tools and knowledge to deliver accurate and competitive services to military borrowers promptly. Distinguish yourself within the military community, bolstering credibility and expanding visibility with the expertise acquired in this course. They’re our heroes; be their hero as the conduit to secure financing for their homes. Enroll now at a discounted price to become a Certified Military Home Specialist and receive your certificate instantly! Engage your team to streamline the process further. Perfect for small teams! Contact Joel to explore corporate discount options. Join us in empowering our heroes with the homes they deserve. Learn More here or sign up now here!

A day after the regional bank’s stock tumbled on tough fourth-quarter results and some austerity moves, observers debated whether management just needs time to build enough capital to catch up with growth or if it is still too overexposed in multifamily lending.

Chairman and CEO of Pennymac, David Spector, said the one-time cost will allow the company to retain ownership of a proprietary system that could build value for investors.

The company declined to provide an estimate of how many senior executives were impacted by the reduction and called it “a flattening of the organization.”

With tougher capital requirements looming, a number of regionals including U.S. Bancorp, Huntington and Santander are using these new instruments to share risk with nonbank investors and lighten their capital load. Experts point out the pros and cons.

Some large Fannie Mae and Freddie Mac portfolios have gone to market recently and an unusual Ginnie Mae multifamily and healthcare package is up for sale too.

Best Levels in More Than a Month Ahead of Jobs Report

At one point this morning, 10yr yields were close to breaking into new 6-month lows.  By the 3pm CME close, we had to settle for the lowest yields since December 28th.  The gains arrived rapidly just this week with concerns over the regional banking sector causing a semblance of the drama seen in March 2023. This has arguably been a bigger consideration for rates than the week’s economic data.  If we include Treasury supply updates, we could argue that data has played a small supporting role at best.  As such, Friday’s jobs report is now the first, last, and only huge potential market mover of the week.

Econ Data / Events

Jobless Claims

224k vs 212k f’cast, 215k prev

ISM Manufacturing 

49.1 vs 47.0 f’cast, 47.1 prev

ISM Prices Paid

52.9 vs 46.9 f’cast, 45.2 prev

Market Movement Recap

08:34 AM A hair weaker overnight with a modest bounce after data.  MBS unchanged.  10yr down 1bp at 3.907.

10:18 AM Modest selling after ISM Data.  10yr still down 1.6bps at 3.823. MBS down 1 tick on the day

11:39 AM Sharp rally starting after 10:30am on regional bank volatility.  10yr down 7.5bps at 3.841.  MBS up 2 ticks (0.06), but possibly as much as 4 ticks (.125) after adjusting for liquidity.

03:47 PM A bit of a give-back into 2pm, but leveling off now.  10yr down 5.5bps at 3.861.  MBS up 1 tick (.03).