Placeholder Ahead of Fed and Big Ticket Data

The first two days of the week have had the least to offer in terms of scheduled economic data and events.  Yesterday’s major exception was the Treasury refunding announcement and today’s was the Bank of Japan announcement in the overnight session.  Neither had any lasting impact on the bond market, interestingly enough.  In today’s case, it was the European economic data that did the most to start the day off with lower rates, but most of the gains were erased after the Employment Cost Index came out just a bit stronger than expected for Q3.  Traders will have to continue to wait for better data-based evidence of “cracks.”  

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

09:16 AM Stronger overnight, mostly on EU data.  Pushing back a bit in domestic trading.  10yr still down 3bps at 4.858.  MBS up 2 ticks (.06).

09:50 AM A bit more push-back into the 9:30am NYSE open, but sideways since then.  10yr down 2.5bps at 4.863.  MBS up 2 ticks (0.06).

03:15 PM Treasuries pushing weakest levels, but still down half a bp on the day at 4.884.  MBS outperforming, up an eighth in 6.5 coupons.

Even with interest rates at a two-decade high and mortgage applications and existing home sales slipping back to 20th-century levels, home prices continue to rise. The S&P CoreLogic Case-Shiller indices increased for the seventh consecutive month while the Federal Housing Finance Agency (FHFA) reports a ninth straight gain in its Housing Price Index (HMI). Case-Shiller’s U.S. National Home Price NSA Index, which covers all nine U.S. census divisions, reported a 2.6 percent annual change in August, up from 1.0 percent in the previous month. The 10-City Composite showed an increase of 3.0 percent, compared to 1.0 percent in July and the 20-City Composite annual gain rose from 2.0 percent to 2.2 percent.   CoreLogic Chief Economist Dr. Selma Hepp says any respite from surging prices might only be temporary. “Although housing prices have increased significantly this year, climbing 5 percent from the early-year low, higher mortgage rates, and seasonal trends will slow further monthly gains – with some possible declines in winter months ,” she said. “Nevertheless, the year-to-date gains indicate that growth will pick up through the end of 2023 compared to last year’s slump during this time period.” Chicago posted the greatest appreciation among the 20 cities for the fourth consecutive month. Seven of the 20 reported lower prices in the year ending August 2023 than in the year ending July 2023 while 12 cities reported higher prices. Nineteen of the 20 cities show a positive trend in year-over-year price acceleration compared to the prior month.

“Change is inevitable, except from a vending machine.” Corporate changes are the name of the game. Atlanta’s Crescent Mortgage’s bank owner is aligning all mortgage facets of the enterprise and moving to “retail only” and eliminating third party. Rather than wind down, Colorado’s Universal Lending is inking an agreement with Lower LLC in a partnership setting up Universal Home Loans being in the same markets as a division of Lower LLC and improve its competitive position. Every discussion that I’ve had with real estate agents lately involves a) thousands of agents leaving the business due to the lack of… business, and b) how 8 percent mortgage rates have absolutely ground transactions, and even interest in looking at properties, to a halt. Meanwhile, I’m having similar conversations with loan originators as a) NMLS licenses are declining, and b) 8 percent mortgage rates have ground activity to a halt. From a broker-dealer’s perspective, BAML’s trade desk reported that, “Supply limped into the weekend, closing at 1.2bn amid a light rate move, dragging the 5 day average to 1.8bn.” (Today’s podcast can be found here, sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology and other services to the mortgage industry for almost four decades. Hear an interview with Richey May’s Seth Sprague on the servicing marketplace, strategic planning, and returns to profitability from an advisory perspective.) Lender and Broker Software, Products, and Services

The US bond market has a borderline preoccupation with certain changes in Japanese monetary policy.  This is arguably justified at times.  Previous tweaks from the BOJ have coincided with big reactions in Treasuries.  One reason is the official selling of Treasuries in order to fund the BOJ’s defense of hard ceilings set on Japanese government bonds.  The BOJ lifted the cap overnight.  This prompted an initial, positive response in Treasuries, but the bigger gains arrived after weaker EU data prompted steadier buying starting at 3am.  Yields were as low as 4.805, but have bounced back a bit after the US ECI data.
The following chart shows all of the above.  Yen/USD is used to show the correlation between Japanese monetary policy and US bonds.  German 10yr yields are used as the de facto European 10yr yield.  Treasury futures volumes at the bottom of the chart provide a good sense of the relative level of importance of recent events, but keep in mind that the EU data is deceptively low in its volume response because it played out over a longer period of time.

ECI going down, but still elevated.

The order follows a similar decree by the Securities and Exchange Commission for publicly traded firms to disclose incidents they deem “material.”

The neobank is also benefiting from its product diversity.

In conjunction with an announcement last week, federal agencies will conduct training workshops to help developers, lenders and other stakeholders benefit from the Biden administration’s housing supply plan.

The financial institution will pay $350,000 in layoff expenses to leave a business beset by high rates and a crowded playing field relative to current demand.

The market appears strongly divided, as commercial real estate presents investors with stark choices and big risk-management decisions, often differing by region and by sub-sector.

Mortgage rates barely budged today.  The average lender was just a hair higher compared to Friday’s top tier conventional 30yr fixed rate offerings. In other words, if you were thinking of locking in a rate last week, things would look about the same today.  This wasn’t necessarily the case earlier this morning, but modest improvement in the bond market allowed lenders to publish revised rates in the afternoon. As always, keep in mind that when we talk about “movement” here on the daily rate coverage, it’s typically smaller than almost anyone would care about.  That’s because we’re tracking rates at a granular level every day whereas more meaningful moves don’t reliably happen that quickly.  The rest of this week could be an exception, however, as there are multiple events with the power to cause volatility. There’s no way to know which way that volatility will resolve ahead of time.  There are things we simply cannot know about these events.  For instance, if the jobs report shows lower-than-expected job growth, that would likely push rates lower.  If it were to show ongoing resilience, rates would likely move up. The biggest risk (or opportunity) involves a  cohesive message across multiple economic reports and events.  In other words, if the economic data on Tue-Fri sends the same message as the Fed announcement on Wednesday, and if a handful of other relevant events argue the same case, rates could move significantly higher or lower by Friday afternoon.