Bonds are in an ongoing consolidation after 10yr yields hit 5% last week.  The consolidation cuts both ways and today is a good cut.  Yields hit 4.99% early but found support from European bonds after the ECB announcement.  Then at 8:30am, a mixed bag of economic data gave way to surprising rally.  To be fair, it’s surprising relative to the headline components of the data, but perhaps less surprising when we consider internal components as well as the consolidation thesis.  Specifically, the consolidation isn’t likely to see a strong vote in either direction until next week.  As for the internals of the data, GDP final sales came in at 3.5 vs a 4.5 forecast, possibly foreshadowing weaker data in the months ahead.
In the following chart, notice EU bonds beginning to lead the bounce.  It’s not clear whether that would have even been necessary for 10s to see more support at the 5.0% ceiling.  

It is said that if all the hunters on opening day(s) of deer season in Wisconsin were grouped together, they would comprise the sixth largest army in the world! Sometimes lenders feel that they have a target on their backs, and here at the WMBA’s 49th Annual Real Estate & Finance Conference in Milwaukee, some of the informal talk in the hallways is about avoiding redlining, a focus of audits and exams. Another is RESPA. When does “As you wish” or “intent” figure into lending? “Rob, is it true that the same business lunch can either be a RESPA violation, or not?” I am not an expert in compliance, but yes, that is true. If you’re an LO who takes a real estate agent to a nice lunch as a thank you for sending business your way, that is seen as a thing of value and would be a RESPA violation. If the same nice lunch is used to discuss new programs and training that your company offers real estate agents, then it is copacetic. Make sense? (For more RESPA tips, read this edition of attorney Brian Levy’s Mortgage Musings focused on Ted Lasso.) Today’s podcast can be found here, sponsored by Visio Lending and its top notch broker program. Visio is the nation’s premier lender for buy and hold investors with over 2.5 billion closed loans for single-family rental properties, including vacation rentals. Listen to an interview with Selene Finance’s John Vella on revenue targets and P&L examinations going on at mortgage companies and what is setting apart successful from less successful mortgage service providers at a time like this.

News of President Chris Marshall’s planned departure at year-end 2024 came amid reports of net servicing gains and the start of a capital raise for an MSR fund.

If the Federal Housing Administration’s rulemaking on home equity conversion mortgages were to go into effect as written, borrower contributions would be reduced by thousands of dollars.

The Consumer Financial Protection Bureau found that more consumers are being charged late fees, while determining that the average cardholder carried $5,288 in total credit card debt last year.

Speaking on a panel at the Future Investment Initiative summit in Riyadh, Saudi Arabia, the JPMorgan Chase chief voiced doubts that central banks and governments around the world could manage the economic fallout from rising inflation and slowing global growth.

Rep. Andy Barr, R-Ky., a senior Republican on the House Financial Services Committee, said he intends to press Federal Reserve Chair Jerome Powell to refine the Basel III capital proposal before it is finalized.

It’s Not So Bad if You Forget The Past 3 Days

Bonds had a somewhat encouraging rally over the past 3 business days, but all that went out the window today.  Why?  No particular reason!  That’s the nature of a market consolidation that falls hard on the heels of a rapid move to levels not seen in 16 years.  As gloomy as it may sound, the best way to view today is as the more normal of the past 4 days with the previous 3 rally days requiring explanations that included profit taking, short covering, value buying, etc. (all things that aren’t immediately measurable, but that make decent sense based on logic and precedent).  Bottom line: last week’s Retail Sales and Fed speakers pushed yields to 5% and not much has happened since then.  More things will start happening tomorrow, and even more next week. 

Econ Data / Events

New Home Sales

759k vs 680k f’cast, 676k prev

Market Movement Recap

09:26 AM Steadily weaker overnight with the most noticeable selling following the 8:20am CME open.  10yr up 7.6bps at 4.895.  MBS down a quarter point

01:30 PM Gradual weakness leading up to auction. Additional selling after.  10yr up 14bps at 4.959.  MBS down 5/8ths.

02:50 PM Flat at the weakest levels.  10yr up 13.6bps at 4.955.  MBS down 5/8ths.

Just when it looked like something new and different might be happening in the mortgage rate world, the market is quickly back to its old ways.   After cresting 8.0% last week for a top tier 30yr fixed rate, the average lender was as low as 7.90% yesterday.  24 hours later and most of the improvement has vanished.  The average isn’t quite back to 8.0%, but close enough. Frustratingly, there are not big, obvious motivations for the weakness.  Normally, we could point to some economic report or headline event causing market volatility.  In this case, it’s all part of the bond market’s process of range-finding and consolidation as it prepares to digest the next few key events. Tomorrow’s economic data is sort of an appetizer for the actual key events that arrive next week.  Those include the Fed announcement on Wednesday, but especially the big jobs report on Friday.

Tuesday brought a dose of encouragement for the bond market. It was the third straight day of gains–an uncommon feat in recent months, to be sure!  This raised the question: was it time to be more optimistic about the odds of 5% marking a new long-term ceiling in 10yr Treasury yields?  While it was fair to be encouraged, it was (and is) far too soon to be convinced.  Odds were (and are) that the bond market is simply in a consolidation phase after the recently sharp rate spike beginning in late September.
Today’s early weakness goes a long way toward confirming the consolidation narrative.  It also means that the uptrend in yields starting on September 20th remains intact and linear.  The diagonal line in the chart below would likely not have been broken were it not for the Israel/Hamas Conflict.  (Note: the box in the chart below is not meant to suggest that the conflict/war is over.  Rather, this marks the time frame where financial markets were most actively engaged in a flight-to-safety trade surrounding the related uncertainties and global macroeconomic risks).

The consolidation pattern will face it’s first major test tomorrow with the morning’s economic data.  Between now and then, it makes most sense for yields to be between the two red lines.