Like its competitor Fannie Mae, the enterprise’s earnings were higher year-over-year but recorded a quarterly decline in part due to a legacy shareholder lawsuit.

Despite the 10% jump in adjustable-rate mortgages, a decline in federally sponsored application volumes dragged overall numbers lower for the fifth time in six weeks, according to the Mortgage Bankers Association.

Powell + Data = Big Bond Rally

When traders/analysts look back to see what was on the calendar when 10yr Treasury yields broke below the 4.8% level after 2 weeks of choppy, sideways consolidation, they’ll assume the Fed was the inspiration for the big rally.  That will only be partially accurate.  In fact, the Fed didn’t really do or say anything that warranted a big rally.  Instead, it was this morning’s slew of economic data and the Treasury refunding announcement that did most of the heavy lifting.  

Econ Data / Events

Employment Cost Index (ECI)

1.1 vs 1.0 f’cast, 1.0 prev

FHA Home Prices

0.6 vs 0.5 f’cast (m/m)

Case Shiller Home Prices

2.2 vs 1.6 f’cast (y/y)

Chicago PMI

44 vs 45 f’cast, 44.1 prev

Market Movement Recap

09:09 AM Flat to slightly stronger overnight.  Additional moderate gains after Treasury announcement.  10yr down 5.3bps at 4.873.  MBS up 5 ticks (.16).

12:31 PM More gains after 10am data, but leveling off now.  10yr down 11.4bps at 4.812.  MBS up half a point.

04:09 PM Additional gains after Fed and Powell press conference.  Holding up well into the close.  10yr down 16.5bps at 4.761.  MBS up more than 3/4ths after adjusting for illiquidity. 

Today was “Fed day” and mortgage rates fell quite a bit.  So it must have been due to the Fed announcement, right?   Not exactly… The Fed helped, but more so by getting out of the way for a bond market that was already rallying.  Let’s talk about what all that means. “Fed day” means that today was one of 8 scheduled announcements by the Fed regarding monetary policy.  At the simplest level, this just means they’ll announce a change or no change in the Fed Funds Rate.  The market didn’t expect a change today and it didn’t get one.    Beyond the rate announcement, there’s also a press conference with Fed Chair Powell where the market can glean clues about future Fed moves.  Little changed there and Powell didn’t say anything materially different than his last public appearance.  Perhaps traders were concerned that some of the recent data would have the Fed thinking more about hiking short term rates and the positive reaction was akin to a sigh of relief. Even then, it wasn’t really the Fed reaction that helped rates the most.  Mortgage rates improve when bonds rally and bonds rallied most sharply in the AM hours after a series of economic reports.  The data was either in line with expectations or weaker, and low rates love weak data.   There was also a more detailed update from Treasury regarding auction amounts.  Treasury auctions determine the “supply” of a Treasury securities, and that supply has a critical impact on interest rate momentum.  It’s a bigger deal for Treasuries than for the bonds that dictate mortgage rates, but the two are very closely correlated.  

As the holiday shopping season approaches, late payments on credit cards have surpassed their pre-pandemic levels, according to a new VantageScore report. The consumers showing signs of deterioration include not only subprime borrowers, but also those with prime credit scores.

President Biden has directed government agencies to develop new rules on protecting privacy and security, preventing intellectual property theft, reducing bias and more in banks’ use of artificial intelligence models.

The lead attorney for plaintiffs filed a new complaint Tuesday against six more brokerages, seeking rule changes and damages for home sellers nationwide.

The U.S. Department of Agriculture program should also allow existing manufactured home sales to be financed, they said.

The cost of properties nationwide rose by 0.6% from July, according to the Federal Housing Finance Agency’s monthly index.

Coming into the current week, we expected to see a fair amount of volatility.  Last week was volatile in its own right, but in a broadly sideways trajectory.  Perhaps it’s more fair to say we’re expecting more of a directional reaction to this week’s data. All that having been said, we have yet to see much of a directional move over the first two days of the week.  Monday saw slightly higher rates and Tuesday’s were slightly lower.  This keeps last week’s sideways vibes intact and places the onus for bigger movement on the events slated for the upcoming 3 days.   The upcoming 3 days are up to the task!  The economic reports are more closely watched by the bond traders that ultimately determine rates.  Tomorrow, specifically, we’ll also get the latest announcement and press conference from the Fed–always a big deal in terms of rate movement potential. Of course, it is possible that events transpire in such a way that positive and negative offset one another, and rates manage to keep moving broadly sideways.  But if there’s a cohesive theme across multiple events/reports, there’s little doubt that rates would start moving with significantly more momentum.