Values declined in two regions and were flat in two others, according to the Federal Housing Finance Agency.

In a filing, the company’s subservicing subsidiary Loancare said 1.3 million customers had their data compromised, while in an ongoing situation, customers of fellow title insurer First American find themselves without email or online access after a separate incident last week.

After dropping precipitously from over 8% in late October to well under 7% by December 14th, mortgage rates have been stone silent.  In the 7 business days that have followed, the average top tier 30yr fixed rate hasn’t moved enough to impact the typical mortgage quote.  Our index has drifted microscopically higher and lower, never moving more than 0.02% from one day to the next, and never more than 0.03% from the center of the range. The last time we’ve seen things this narrow for this many days in a row was in November, 2022.  Rates had just moved down abruptly from long-term highs and there was uncertainty as to whether additional improvement would be justified by data and events.  That’s arguably the case this time as well, although the present rally has been longer lasting and better supported by data. In both cases, the sideways slide speaks to uncertainty.  Bonds (which dictate rates) don’t know the next move until they see the data in early January.  Even then, the movement will only go so far without getting more justification from the data.  Bottom line, we’re in “wait and see” mode, but at least we’re waiting and seeing at the lowest rates in more than 7 months.

Quietest Trading Day of The Year

We’ve seen other days this year where bonds have traded in a similarly narrow range, but none of those days boasted the exceptionally low volume seen today.  Even without it being an early close, it is still on track to being the lowest volume day of the year.  There was no reaction to the home price data this morning (nor would we expect that, even on a busy day), but the 2yr Treasury auction produced a bit of a response in shorter-term Treasuries.  10yr yields didn’t react much, but they were able to turn a microscopic loss into an improvement of similar proportions (i.e. less than 1bp lower on the day).

Econ Data / Events

Case Shiller Home Prices y/y

4.9 vs 4.9 

FHFA Home Prices y/y

6.3 vs 6.2 

Market Movement Recap

09:49 AM Sideways in a narrow range overnight.  Little changed now.  10yr down 0.2bps at 3.899.  MBS up 2 ticks (.06).

12:46 PM The flatness continues.  10yr up less than 1bp at 3.908.  MBS up 2 ticks (.06).

03:32 PM 10yr now less than 1bp lower at 3.893.  MBS up 1 tick (0.03).  Super slow trading.

Workers who switched companies have disparaged their former employer to its homebuilder partners, the suit claims.

Chicago businessman David Izsak grifted several financial institutions out of $4 million by taking out phony home loans and other types of credit.

The Federal Housing Finance Agency is now allowing Fannie Mae and Freddie Mac to each invest up to $1 billion annually with certain conditions.

Early Close and a 3-Day Weekend

Cash bond trading closes at 2pm ET today.  Data coincided with brief, modest volatility this morning, but it only lasted for 30 minutes.  After that, bonds have been and will continue to be at the mercy of late December trading motivations which tend to create random, illiquid, low-volume movement that defies any of the typical reaction functions.  In other words, whatever we’re seeing on the screen today could be considered noise as we wait for cleaner signals in early January.

Econ Data / Events

Durable Goods 

5.4 vs 2.2 f’cast, -5.1 prev

Core Durable Goods

0.8 vs 0.2 f’cast, -0.6 prev

Core m/m PCE Inflation

0.1 vs 0.2 f’cast, 0.2 prev

Core y/y PCE

3.2 vs 3.3 f’cast, 3.5 prev

Market Movement Recap

09:16 AM Slightly stronger overnight, initially weaker after data, but back in stronger territory now.  10yr down 2.5bps at 3.869 and MBS up 1 tick (.03).

12:01 PM weakest levels after adjusting for liquidity.  MBS down 1 tick (0.03).  10yr yield up 2.2bps at 3.914.

Cash bond trading closes at 2pm ET today.  Data coincided with brief, modest volatility this morning, but it only lasted for 30 minutes.  After that, bonds have been and will continue to be at the mercy of late December trading motivations which tend to create random, illiquid, low-volume movement that defies any of the typical reaction functions.  In other words, whatever we’re seeing on the screen today could be considered noise as we wait for cleaner signals in early January.

Next week is perhaps even worse in terms of participation, volume, liquidity, with the one exception being that additional year-end trading will be going on in the background.  Bonds are back in action on Tuesday (closed Monday for Christmas).

The astonishing pace of the recent drop in interest rates has raised some questions regarding sustainability and justification, but we can clear them up with a single chart. The Federal Reserve doesn’t ultimately dictate rate levels, but it has a huge impact on how rates move.  The Fed has been credited with fueling the improvements of the past 2 months, but it’s important to remember that credit couldn’t be given without justification from economic data. Inflation is the most important part of the Fed’s “mandate” (a fancy word for job description).  Before we get to the chart that explains it all, let’s take a look at a chart that adds to the confusion.  It’s often repeated that Core year-over-year PCE is the Fed’s preferred metric for tracking the 2% inflation target.  Here’s how it looks after the most recent update this week: If this were the only way to view inflation, certainly the Fed would not yet be justified in cutting rates.  To be fair, the Fed is not cutting rates.  They are merely beginning to discuss what rate cut timing might look like if that line continues to fall as expected.   Still, some pundits say it’s too soon.  The counterpoint is that year-over-year inflation numbers include many past months with much higher inflation, and those months are no longer indicative of current price patterns.  Fortunately, we have month-over-month charts as well, and they tell a different story.