An uneventful overnight session has given way to roughly unchanged levels at the start of another day without CPI.  The first 3 days of this week are all in the same boat in that regard: none of them host the December CPI data (due out Thursday at 8:30am ET).  The only other potential disruption between now and then is the Treasury coupon auction cycle which begins today at 1pm ET with 3yr notes.  This isn’t the biggest potential market mover among the auctions, but we have seen a reaction or two in the past.  In general, bonds are consolidating now after correcting off the lower yields at the end of December.

In the bigger picture, we still need to guard against the possibility that the correction is just beginning.  The following chart frames the consolidation as a very recent development (yellow lines).  Either way, a big beat/miss in CPI would likely be enough to defeat or confirm the red line trend.

Is it just my imagination or do restaurants no longer have salt and pepper shakers on the tables after COVID? Is it just my imagination or do organizations with initials that begin with “N” have trouble keeping their leadership? In August of 2023 the chief of NAR resigned, last week it was the NRA, and this week it is NAR’s turn again, this time losing Tracy Kasper to blackmail! Meanwhile, keeping on with real estate news, and realizing that anyone can sue anyone, news came out after Christmas that Zillow, which also owns Zillow Home Loans, is suing rivals over software that schedules property showings.  Agency news Freddie Mac (FHLMC) and Fannie Mae (FNMA) still have the lion’s share of the applications coming through lenders. What’s going on with their conventional conforming products? Fannie Mae SVC-2023-06 December Servicing Guide update advises large non-depository sellers/servicers of updates to the frequency of financial reporting requirements and provides other miscellaneous updates. Fannie Mae and Freddie Mac are equipping lenders with updated resources for Uniform Loan Delivery Dataset (ULDD) Phase 5. Updates include an enhanced ULDD extension schema, featuring Phase 5 extension data points, and updated ULDD FAQs referencing the schema. Fannie Mae posted the December Appraiser Quality Monitoring (AQM) list. Pennymac Announcement 23-89 addresses Fannie Mae SEL-2023-09, Rental Income and Self-Employed Borrowers Update.

Tracy Kasper’s departure follows the November exit of former CEO Bob Goldberg.

Gravy Technologies offers a consumer-facing app, along with a white-label service for mortgage lenders aimed at accelerating their marketing efforts.

The bot, named Cooper AI, can answer questions regarding FHA and VA guidelines.

December’s shift in Federal Reserve policy gave a notable boost to the share of consumer respondents who think the affordability of home financing will improve.

The president of the Federal Reserve Bank of Dallas and former manager of the central bank’s open market account said a slower approach to balance sheet reduction may be warranted sooner rather than later.

Range Finding Ahead of Auctions and CPI

The start of the new week saw bonds start at unchanged levels, rally somewhat sharply inside Friday’s range, and then sell off more slowly/gently.  The net effect was a modest improvement by the end of the day.  Analysts were affected by confusion over what’s driving the price action.  There were no standout market movers in the news or on the econ calendar.  A NY Fed survey that showed cooler inflation made sense in concert with AM gains, but the timing didn’t line up.  Same story for various Fed comments throughout the day.  We’re left with the impression that today was more about new positions being put on for 2024 and, in the more timely picture, range-finding ahead of this week’s Treasury auctions and CPI data.

Market Movement Recap

09:44 AM Flat to slightly stronger overnight in very quiet trading.  10yr down 2.8bps at 4.023.  MBS up 2 ticks.

11:58 AM Additional gains.  10yr down 7.3bps at 3.978.  MBS up a quarter point.

04:58 PM Giving up mid-day gains into the after hours close.  10yr now down only 2bps at 4.03.  MBS up only 1 tick (0.03).

Even as consumer sentiment about housing remained generally pessimistic, a change in perceptions about the future of mortgage interest rates did a lot to brighten the mood of consumers responding to Fannie Mae’s National Housing Survey (NHS). The company says its Home Purchase Sentiment Index (HPSI) based on that survey rose 2.9 points in December. That month’s reading of 67.2 is the highest for the index since the spring of 2022 and 6.2 points higher than in December 2022.   The increase was largely due to consumers’ expectations that interest rates, already down more than a point from their November levels, would continue to decline over the next 12 months. Thirty-one percent of those responding to the rate prediction question said they expected a decrease, 31 percent said rates would increase, and 36 percent expected no change for a net positive response of 0 percent. This is 22 points higher than in November and a 37-point increase year-over-year. It may have been rate prospects that also gave a slight lift to consumer attitudes toward home buying. The question as to whether it is a good time to do so has been generating a net negative score hovering around a survey low of 70 percent for the last three months. That number rose 5 points in December to a negative net of 66 percent. As for selling, 57 percent of respondents viewed those conditions as good versus 42 percent who did not for a net positive of 17 percent, down 5 points for the month.

Last week saw several key economic events attempt to exert some influence on interest rate momentum without any obvious winner.  Rates ended the week somewhat higher, but most of the increase was in place at the very beginning of the week. The theme of two-way volatility without any major changes continues as the new week gets underway.  Unlike last Friday, there were no major, scheduled events that had clear impacts on rate momentum.  Rather, the bond market took steps to prepare for the events of the next few days. Thursday’s Consumer Price Index (CPI) will be the week’s most potentially consequential event.  The most widely traded inflation report, CPI has been at the scene of many of the biggest interest rate changes of the past 2 years, but notably, such reactions require a result that is far from the consensus among economic forecasters.  In other words, CPI has the POTENTIAL to cause a big reaction, but it depends on how the report comes out.  Between now and then, the US Treasury auction cycle will serve as an opening act.  On each of the next 3 days, a large amount of Treasuries will be auctions (with results published just after 1pm ET). If demand is strong, rates could favor the lower part of their recent range ahead of CPI and vice versa.