Bonds drifted gradually but consistently intro stronger overnight.  We could point to a few events and a few pieces of data (softer Chinese inflation, flat inflation in Europe, ongoing Israel-Hamas war headlines) in an attempt to connect the movement to market movers, but that would be an injustice to this week’s most relevant and consistent market mover: a tone shift from the Fed.  Apart from Thursday’s CPI reaction, the entire week has represented a gradual correction back down from the highest yields in 16 years.

The mirror image symmetry seen in stocks can be taken at least two ways.  At the most basic level, stocks could simply “blame” rates by saying high rates will hurt stocks and a rate rally will help.  That tends to be an explanation of convenience when other explanations are hard to find, but there is probably some truth to it at a time when rates are as high as they are.  
The other implication of the symmetry is that the market is broadly trading its outlook for Fed accommodation.  Without a doubt, this week represents one of the highest concentrations of Fed speakers coming out and saying something that represents an adjustment from the prevailing message.  The adjustment? In not so many words, it sounds like the Fed is done hiking as opposed to looking for one more hike as suggested in the dot plot that came out only 3 weeks ago.
Against that backdrop, it takes some doing to deflect rates in a meaningful way.  CPI certainly did, but this morning’s higher inflation expectations in the Consumer Sentiment data isn’t looking like it’s up to the task so far.  

Today, as I head to Chicago (from the Native American word shikaakwa, for the wild onion) on my way to Philadelphia, I received this note. “Rob, why is PenFed exiting from correspondent?” Well, you should talk to your PenFed rep. But if anyone had to make a harsh guess, it would start by asking, “Why would any member-based organization with a branch network and thousands of members, in this environment, feel the need to offer wholesale or correspondent channels to others at very low margins who may be competitors?” There will be plenty of competitors under one roof at the MBA’s Annual starting Sunday. For many IMBs, their goals by going include searching for a great HELOC and/or 2nd program, seeing what’s new with down payment assistance programs, and seeing the latest in under-served markets. Another topic will of course include inflation and interest rates. Is your car insurance up 19 percent? Yesterday’s CPI said so. How about taking the family to Disneyland? A ticket to Disneyland on the most popular days is as high as $194, which is up 8 percent. A five-day ticket’s price will rise 16 percent to $480. Parking is $65. (Today’s podcast can be found here. This week’s is sponsored by NotaryCam, your partner for The Perfect Close! Ease of use, additional closing compliance, better borrower experience, reduced timelines, and cost savings, what is stopping you from getting on the RON train with NotaryCam? Listen to an interview with attorney Jay Beitel on arguments in the Supreme Court case regarding the CFPB.)

The Department of Housing and Urban Development affiliate is making it easier to repackage securities backed exclusively by these mortgages.

The Consumer Financial Protection Bureau and the Justice Department warned banks and other lenders that credit applicants cannot be rejected due to their immigration status.

The average interest rate for the 30-year loan rose for the fifth consecutive week, according to Freddie Mac, but Treasury yields did move lower.

The real estate data and software provider integrated its offerings, including borrower income analysis and property data, with acquired Roostify’s point-of-sales system.

Ishbia, chief executive officer of mortgage giant UWM Holdings Corp., in February completed the $2.28 billion purchase of a 57% controlling stake in the National Basketball Association’s Suns and the WNBA’s Mercury, a deal that valued the teams at $4 billion.

Mortgage rates have enjoyed 2 days of uncommonly big gains.  Granted, they come at the expense of horrific events and an exceptionally high starting point, but such is the nature of the underlying bond market. In other words, we’re historically more likely to see strong surges toward lower rates amid stronger, broader surges toward higher rates. Unexpected events that cause significant geopolitical uncertainty frequently serve as catalysts.  Thus, the past two days were a bit of a perfect storm for one of these periodic corrections. These sorts of corrections tend to last a day or two and then the market gets back to business. Today was the ‘back to business’ day in the current example.  It might not have been so bad were it not for the details of the Consumer Price Index (CPI), an important report on inflation. Inflation is one of the main reasons that rates are as high as they are.  If the data fails to show progress back toward more normal levels, rates won’t come down.  Today’s data arguably showed the opposite of progress, particularly in the services sector. The bond market (which dictates mortgage rates) began losing ground (which implies higher rates) immediately following the release of the CPI data.  Later in the day, a scheduled auction of 30yr Treasury bonds was met with lackluster demand, thus pushing rates even higher.   Most mortgage lenders were forced to increase rates at least once in the middle of the day, and that’s on top of the moderately higher levels out of the gate this morning. Rates aren’t as high as they were at the end of last week, but they’ve taken a solid step back in that direction.  That leaves the average lender well over 7.5% and closer to 7.75%  for a top tier, conventional 30yr fixed scenario.

Today is 101223. Of course you know, by looking ahead to the last day of 2023, that it will be 123123. By then, how many times do you think you’ll hear, “Due to a strategic decision, we’ve decided to…”? Those lenders looking at volumes for the next several months may be wary or even frightened. As if volumes aren’t scary enough, there are only 19 days until Halloween! Where are you going to be trick-or-treating this year? There are some good candidates out there that my cat Myrtle may fly into on her broomstick: Tombstone (AZ), Slaughter Town (LA), and Seven Devils Town (NC) are at the top of her list. The U.S. Census Bureau reports that there are roughly 128.5 million occupied U.S. housing units that could be potential stops for trick-or-treaters. If you’re at one of those and are expecting trick-or-treaters, there are 3,227 U.S. confectionery and nut stores and 726 U.S. formal wear and costume rental establishments. (Today’s podcast can be found here. This week’s is sponsored by NotaryCam, your partner for The Perfect Close! Ease of use, additional closing compliance, better borrower experience, reduced timelines, and cost savings, what is stopping you from getting on the RON train with NotaryCam? Listen to an interview with NotaryCam’s Suzanne Singer on why Remote Online Notarization (RON) hasn’t taken off like many would have hoped.) Lender and Broker Software, Products, and Services “Harness insights from the upcoming MBA Annual Convention and Expo by creating a meaningful strategy for innovation! It can be difficult to buy advancing industry technology anytime during the year, but this can be the best time to introduce a simple, sophisticated, easy-to-implement solution that will solidify your vision for 2024. Our recent blog, ‘Tapping Innovation to Ignite Change Automation for Mortgage Servicing,’ highlights smart workflow, what you’re missing if you haven’t embraced digitization, and how to leverage AI while avoiding the risk of emerging technology. These are important elements of surviving and competing in today’s complex and volatile mortgage landscape. Don’t miss the chance to embrace industry-proven innovation: Let CLARIFIRE® do your heavy lifting while you capture a better approach, better results, and better software… today!”

Bonds Snap Back to Reality on Higher Core Services CPI

Even before this week’s rally began, we knew to be on the lookout for brief pockets of lower bond yields.  These corrections are common during selling sprees.  They serve as periodic pressure releases but are almost always meaningless when it comes to redefining any big picture trend. Today’s sell-off drove that point home and was perhaps easier for traders to facilitate in light of the last two days of gains.  Still, the selling required a catalyst and it found one in the “core services” component of today’s CPI report.  This is exactly the place the Fed wants to see better progress on inflation, and the numbers showed the opposite of progress. 

Econ Data / Events

Core CPI m/m

0.3 vs 0.3 f’cast, 0.3 prev

Core CPI y/y

4.1 vs 4.1 f’cast, 4.3 prev

Headline CPI m/m

0.4 vs 0.3 f’cast, 0.6 prev

Jobless Claims

209k vs 210k f’cast, 209k prev

Market Movement Recap

09:31 AM Moderate weakness after data.  10yr up 4.6bps at 4.604 and MBS down just under a quarter point.

11:37 AM Additional weakness.  MBS down half a point.  10yr up 10.6bps at 4.664.

04:10 PM leveling off at the weakest levels of the day.  10yr up 15bps at 4.07.  MBS down just over 5/8ths.