Solid End to a Solid Week

With essentially nothing meaningful on the economic or event calendar, the bond market did a good job sticking to a logical script of “more sideways and less volatile after CPI.”  It remains to be seen if that script will remain in force all the way until the first full week of December, but there’s nothing in terms of scheduled events that promises to derail it.  The only exception might be the weird trading dynamics occasionally seen on Thanksgiving week, but those must be taken with a grain of salt (or an ounce of gravy?) until being confirmed or rejected by more active markets in the following weeks.  All we know right now is that this was a solid week that ended on a solid note.  

Econ Data / Events

Housing Starts

1.372m vs 1.35m f’cast, 1.358m prev

Building Permits

1.487m vs 1.45m f’cast, 1.471m prev

Market Movement Recap

12:09 PM Stronger overnight thanks to Europe, but weaker as domestic session progresses, possibly finding support now.  MBS down 3 ticks (0.09) and 10yr up half a bp at 4.445.

02:53 PM Decent recovery for MBS into the close with 6.0s up 1 tick (0.03).  10yr yields are unchanged at 4.441.

04:27 PM Heading out near unchanged levels with MBS down only 1 tick (0.03) and 10yr yields perfectly unchanged at 4.441.

Both of the key metrics for residential construction, housing permits, and housing starts, beat analysts’ expectations in October. The U.S. Census Bureau and Department of Housing and Urban Development said permits rose 1.1 percent compared to September while housing starts increased by 1.5 percent. Permits were issued at a seasonally adjusted annual rate of 1.487 million units compared to 1.471 million units in September. The September estimate was only a slight revision from the 1.473 million originally reported. Analysts polled by Econoday had estimated that permits would come in at 1.463 million units. [housingpermitschart] The permits issued in October 2023 were 4.4 percent fewer than the 1.555 million permits authorized in October 2022. The annual rate of permitting for single-family houses was 968,000 units, 0.5 percent higher than the 963,000 units in September and an improvement of 13.9 percent year-over-year.  Multifamily permits increased by 2.2 percent to 469,000 but dropped 27.9 percent compared to October 2022. On a non-adjusted basis, there were 124,000 permits issued last month, 79,700 of which were for single-family houses, an improvement on the relative numbers in September of 116,700 and 76,500. Permits for the first nine months of 2023 total 1.252 million, down 13.8 percent from the same period last year. The 773,600 permits for single-family houses are a reduction of 10.6 percent from the same period last year and the 432,300 multifamily represent a decrease of 20.1 percent.

Our recent analytical thesis runs the risk of being all dressed up with nowhere to go between now and the first full week of December.  As such, things could get repetitive in the coming week although monotony could be broken by unexpected headlines (geopolitical flare-ups, political surprises, major corporate developments like huge layoffs at huge firms). 
Monotony can also give the appearance of being broken simply because it will be a holiday week with lighter volume/liquidity–a combination that makes it easier for fewer trades to have a greater impact on trading levels.  For today, markets are left mainly with a smattering of Fed speaker snippets that largely echo what we already know.  As such, it’s no surprise to see bonds coasting sideways in the prevailing range.

This wasn’t necessarily destined to be the case according to the overnight session.  Weak economic data in Europe pushed EU yields sharply lower and brought US yields along for the ride.  But US traders have quickly pushed yields back into the range.  This is the baseline resistance level for the rest of the day, and for next week unless something big happens.

Talk can be humorous. “That lowdown scoundrel deserves to be kicked to death by a jackass, and I’m just the one to do it.” (Attributed to a congressional candidate in Texas.) Here in Dallas, mortgage talk is certainly wide-ranging and varied as there’s a lot going on out there as we head toward Thanksgiving week, including cost cutting, M&A, and Fair Lending. Today’s Rundown features Feliks Viner, VP of Capital Markets with First World Mortgage discussing rate volatility at 3PM ET. We have the Wall Street Journal story about the union between hoops and loans: “Mortgage King Wants the NBA Crown, Too.” Some housing industry observers may only think it was “only a flesh wound,” but the Realtors™ antitrust case decision in Missouri, coupled with other recent settlements and an onslaught of new cases, likely portend real changes for how homes are bought and sold in the US with the assistance of real estate brokers. Attorney Brian Levy, breaks it down and offers his view of the crumbling dam for buyer broker commissions and the Realtors’ control over local listings in his most recent Levy’s Mortgage Musings. (Today’s podcast can be found here, sponsored by LoanCare, the mortgage subservicer known for delivering superior customer experience through personalization and convenience. Its award-winning portfolio management tool, LoanCare Analytics, supports MSR investors with a focus on customer engagement, liquidity, and credit risk. Interview with Calque’s Chandra Srivastava on the inner workings of a mortgage marketing department and how companies justify ROI on marketing spend.)

The Consumer Financial Protection Bureau said in an annual report to Congress that unpaid medical debt is plagued by inaccuracies, and that consumers are often faced with opaque pricing and uncertain insurance coverage.

With mortgage rates retreating and inflation abating, short sellers who’d been capitalizing on the three-month slump in homebuilder stocks may need to prepare for a rebound toward year-to-date highs.

Experts across the financial services space hold that the White House’s new mandates won’t bring wholly new rules to the industry, but will hopefully explain what the path forward for governing agencies will look like.

The market’s reaction to the Consumer Price Index report on Tuesday helped to push the 10-year Treasury and 30-year fixed-rate loan lower, Freddie Mac said.

Instead of buybacks, performing loans could be subject to fees related to defect rates, with some exceptions made for small lenders that deliver a limited volume of mortgages.

After a fantastic day on Tuesday and frustrating little bounce after yesterday’s Retail Sales data, mortgage rates have fully recovered back to the recent lows. Any time rates move enough to merit a discussion, it coincides with a similar move in the broader bond market.  Bonds are currently highly susceptible to economic data (as seen on Tue/Wed).  Whereas Wednesday’s data pushed bond yields and interest rates higher, Thursday’s data sang a different tune. weekly Jobless Claims (not to be confused with the big monthly “jobs report” that comes out on the first week of any given month) were higher than expected and several other reports also spoke to a modest uptick in economic headwinds.  The economy may not like headwinds, but what’s bad for the economy is generally good for bonds/rates.  Today was no exception. As bonds erased all of yesterday’s losses, interest rates moved back in line with best recent levels.  For some lenders, that was Tuesday.  For others, it was last Friday. This leaves the average lender at the lowest levels in almost 2 months.  Top tier conventional 30yr fixed scenarios are safely back below 7.5%, but safety can only be assessed one day at a time in this market.  That said, rates won’t get their next dose of critically important data until the first week of December.