Bonds surged lower in yield last week on a combination of economic data, Fed comments, and the Treasury issuance update.  While the move definitely drew some strength from the deeply oversold bigger-picture momentum, it was nonetheless more than merely a token correction.  But is it “much more?”  We can’t really answer that question for a few more weeks, but we can begin to answer it by seeing how this week’s Treasury auctions are digested.  Tuesday’s 3yr auction went well, but today’s 10yr auction is much more consequential.

Needless to say, if 10s were willing to react that much to the 3yr auction, a similarly strong auction result today would easily break the stalemate at 4.55%.  Conversely, a weak result would would add more emphasis to the “floor” vibes.

A quarter-point decline in 30-year fixed-rate mortgage (FRM) interest pushed mortgage application activity higher across the board during the week ended November 3. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage application volume, increased 2.5 percent on a seasonally adjusted basis from one week earlier, the largest increase since mid-September . The unadjusted Index was 1.0 percent higher.   The Refinance Index rose 2.0 percent from the previous week and was 7 percent lower than the same week one year ago. Refinance applications accounted for 31.4 percent of the total, up from 31.2 percent the prior week. [refiappschart] The seasonally adjusted Purchase Index increased 3.0 week-over-week and was 1.0 percent higher before adjustment.  Purchase volume was 20 percent lower than the same week in 2022.   [purchaseappschart] “The 30-year fixed mortgage rate dropped by 25 basis points to 7.61 percent, the largest single week decline since July 2022,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.  “Last week’s decrease in rates was driven by the U.S. Treasury’s issuance update, the Fed striking a dovish tone in the November FOMC statement, and data indicating a slower job market. Applications for both purchase and refinance loans were up over the week but remained at low levels. The purchase index is still more than 20 percent behind last year’s pace, as many homebuyers remain on the sidelines until more for-sale inventory becomes available .” 

The Federal Housing Finance Agency said in a long-awaited report that it will set up new guardrails for the Federal Home Loan Banks to ensure that the institutions are serving a housing-centric mission.

As U.S. credit card balances continue to march above $1 trillion, the number of newly delinquent credit card users now exceeds the pre-pandemic average and millennials and those with student or auto loans are driving the increase in past-due payments, the New York Fed said.

He will take over the role from current non-executive chair Sara Mathew, who’s allowed time on the government-sponsored enterprise’s board is expiring.

Often a harbinger of recessions, the fact that short-term yields are higher than long-term is not inherently bad, Federal Reserve Gov. Chris Waller said Tuesday, noting that in this case it could prove that market expectations are anchored.

The coworking giant’s spiral hit landlords along the way as it renegotiated and sought to exit many leases.

Back to Breaking Even on The Week

Bonds rallied overnight thanks to weaker econ data in Europe and managed to build modestly on those gains throughout the domestic session.  The most notable scheduled calendar event turned out to be the 3yr Treasury auction at 1pm.  It had a noticeably positive (but not huge) impact on both the long and the short end of the yield curve.  Bonds hit their best levels at 2pm and leveled off after that.  The gains ended up erasing about half of the weakness seen since Friday morning, and all of the weakness seen since Friday’s close.

Market Movement Recap

09:36 AM Slightly stronger overnight, led by Europe.  10yr down 3.9bps at 4.608.  MBS down 1 tick (0.03) but illiquid (would be slightly stronger otherwise).

01:13 PM Strong 3yr auction helping a bit.  10yr down 6.8bps at 4.579.  MBS up just over a quarter point.

03:27 PM Best levels of the day at 2pm, with 10s briefly hitting 4.546, but bouncing back since then.  Right in line with the previous update.

04:43 PM MBS out with a quarter point gain on the day.  10yr down almost 8bps at 4.569.

After one of the best 3-day winning streaks in decades last week, mortgage rates jumped a bit to start the new week.  That jump turned out to be a temporary correction as Tuesday brought a mild recovery.   Rates are determined by trading levels in the bond market and bonds take cues from many sources.  On many trading days, the initial tone is set by overseas trading that takes place overnight.  That was the case today as weak economic data in Europe put downward pressure on rates globally. During domestic hours, things didn’t change much.  Agreeable comments from Fed speakers allowed bonds to hold the overnight gains.  At 1pm ET, strong demand at the 3yr Treasury auction helped bonds improve a bit more. The average mortgage lender was able to offer rates that were slightly better than Monday’s, but still not as low as Friday’s.

Every now and then European markets do favors for the US bond market narrative.  They can also detract, but today is not one of those days.  Weaker overseas economic data led to overnight gains in EU bonds.  Those gains spilled over to US bonds and largely account for the moderate rally seen so far on Tuesday. 

With that, the present week looks super sideways coming off last week’s rally (as opposed to looking “corrective”–something we may have worried more about yesterday).  At this point, we’ve retained roughly half of Friday’s gains and successfully defended a break back into Thursday’s territory.

Hurdles remain in the form of the Treasury auction cycle.  Today’s 3yr is somewhat relevant, but the 10 and 30yr tenors are more consequential over the next 2 days.