Uneventfully Sideways At Modestly Weaker Levels

Friday ended up being the least interesting day of the week although it did manage to offer some hope that the post-Fed selling spree has found a limit.  Bonds were just a bit weaker in the overnight session but opening levels were roughly in line with Thursday’s weakest levels (so no real additional selling in daily terms). In addition, the opening levels served as support that offered several bounces throughout the day in Treasuries (4.14% in 10yr yields, e.g.). Some would consider such things to be early evidence of the market finding its footing after 2 days of selling. Ultimately though, bigger moves remain dependent on econ data. Next week is fairly light in that regard, but the plethora of Fed speeches could help balance the hawkish takeaway from this week’s Powell press conference.

Market Movement Recap

10:13 AM Modestly weaker overnight but erasing some losses since 9am.  MBS down 2 ticks (.06) and 10yr up 1.5bps at 4.119.

12:25 PM 10yr yields are near today’s highs at 4.139, up 3.5bps on the day.  MBS down just over an eighth of a point.

03:09 PM MBS down an eighth and 10yr up 2.8bps at 4.132

What a difference a week makes for mortgage application demand. As we noted last week, mortgage rates were already trending lower than those captured in the weekly survey numbers from MBA and Freddie Mac.  The expectation was that refinance activity would be surging in this week’s data.  That turns out to have been an understatement. For the first time in several years, we have to take our chart of MBA’s refinance applications all the way back to 2022 in order to provide context for the levels achieved this week.  Until now, September 2024 set the high water mark. That’s a whopping 58% increase in refi demand versus last week, and it’s 70% higher than the same week one year ago. The Purchase Index rose only 3%, but that leaves it near the best levels since early 2023. Overall applications were up 29.7%, the 2nd biggest jump since the last week of 2022, and in outright terms, application activity rose by the highest amount since July 2021! There are already clouds on the horizon, unfortunately.  On the same day these numbers were released, rates began moving sharply higher in response to this week’s Fed announcement (why?). The rate spike continued on Thursday in response to economic data.  All told, rates are easily back up to the highest levels since before the September 5th jobs report.  Mike Fratantoni, MBA’s SVP and Chief Economist noted “homeowners with larger loans jumped first, as the average loan size on refinances reached its highest level in the 35-year history of our survey.”

Rate rolled out its Rate App entirely in Spanish Thursday as part of its Language Access Program.

Radian undertook a multiyear process that resulted in the $1.7 billion purchase of Inigo, but it’s exiting other businesses outside of mortgage insurance.

Intermediary automation has increased the immediate availability of product, pricing and eligibility information to both sides of the mortgage business.

President Donald Trump asked the Supreme Court to reverse a lower court ruling allowing Federal Reserve Gov. Lisa Cook to remain in office pending the outcome of her lawsuit challenging Trump’s move to fire her late last month.

CrossCountry Capital will partner with an Ares Alternative Credit fund and Hildene Capital Management after receiving $1 billion of equity capital commitments.

It’s day two of mortgage rates surging higher–now back to the highest levels in 2 weeks (the day before the September 5th jobs report). The juxtaposition of yesterday’s Fed rate cut and the sudden mortgage rate spike is incredibly confusing to most of the population, so let’s clear it up. SHORT VERSION:  
The Fed Funds Rate (FFR) doesn’t dictate mortgage rates
The FFR only changes on Fed announcement days, 8 times a year.  It changes in response to various economic reports and events.
Mortgage rates change daily and the bonds that drive mortgage rates change in real-time throughout the day.  That means mortgage rates can drop for all the same reasons that drove yesterday’s rate cut.
Because those reasons were already in play well before yesterday, mortgage rates had already responded to them well before yesterday.
Bottom line: the Fed Funds Rate and mortgage rates dropped for the same reasons, but mortgage rates got to do it sooner because they move more nimbly. 
LONG VERSION:
We’ve written and re-written the long version too many times to count.  Here is one of the most evergreen examples: https://www.mortgagenewsdaily.com/markets/mortgage-rates-09212022
SPECIAL NOTE REGARDING OTHER NEWS STORIES SAYING RATES ARE LOWER: There are an unfortunate number of news articles out there today that claim mortgage rates are LOWER.  This is due to Freddie Mac’s weekly rate survey dropping to 6.26 from 6.35 last week. Freddie’s rate is an average of the 5 days ending yesterday, so 80% of the input is comprised of the lowest rates in a long time.  News organizations then quote the survey and give the impression that this week’s rates are lower than last week’s.

Will September Deja Vu Continue?

Rates rallied hard into last September 2024’s Fed rate cut and then bounced relentlessly higher.  With average rates up about a quarter point since Tuesday, the parallels are certainly there.  But Last year’s spike didn’t happen so abruptly on Fed day and the day after.  It required upbeat econ data to send rates screaming higher. In today’s case, we had two separate upbeat reports. This was barely worth an eighth of a point of weakness in MBS and not even 3bps of weakness in 10yr yields, but on average, lenders are feeling defensive (when MBS prices were at the same levels 2 weeks ago, rates were almost 10bps lower). The good news is this: the deja vu is both coincidental and driven by objective developments. It’s not on a pre-set course and it won’t continue if incoming economic data is weak. The bad news is that if the incoming data is surprisingly strong, well… you know.

Econ Data / Events

Continued Claims (Sep)/06

1,920K vs 1950K f’cast, 1939K prev

Jobless Claims (Sep)/13

231K vs 240K f’cast, 263K prev

Philly Fed Business Index (Sep)

23.2 vs 2.3 f’cast, -0.3 prev

Philly Fed Prices Paid (Sep)

46.80 vs — f’cast, 66.80 prev

Market Movement Recap

08:23 AM MBS up an eighth and 10yr down 1.6bps at 4.064

08:37 AM Slightly weaker after data.  MBS still up 1 tick (.03) and 10yr up 0.1bps at 4.081

09:39 AM Losses continue.  MBS down 6 ticks and 10yr up 4.9bps at 4.129

12:27 PM sideways after early losses.  MBS down 3 ticks (.09) and 10yr up 3bps at 4.111

03:17 PM MBS down just over an eighth and 10yr up 3.4bps at 4.115

This morning’s economic reports (jobless claims and Philly Fed) are not notoriously big market movers, but many analysts gave ample credit to Claims for driving last Thursday morning’s rally.  Now today, claims are right back in line with the same low levels from 2 weeks ago.  Continued Claims are also much lower than expected, including a friendly revision to last week’s number.  A much stronger Philly Fed result isn’t really helping, even if it’s probably not hurting as much as the jobless claims reversal. Bonds were slightly stronger before the data, but yields are beginning to lift off since then.

Surprisingly big reaction to this data in Fed Funds Futures (nearly as big as yesterday’s Fed announcement).

But not super huge in the bigger picture.

Same chart as above, with 10yr yields on a separate axis.