The bipartisan deal struck Saturday temporarily allays concerns that would’ve required workarounds in parts of the lending process reliant on government agencies.

Donald Trump wanted to get higher on the Forbes billionaires list and save a fortune on loan terms by overvaluing his properties, according to documents presented by New York Attorney General Letitia James at the former president’s civil fraud trial.

Bonds Blasted by Data and Stop-Gap

The stop-gap bill that averted the government shutdown was worth some instant selling in the bond market.  It was not a given that this would be the reaction as past examples have gone both ways.  We also can’t rule out random tradeflows associated with the changeover in the month/quarter. Selling intensified after the 10am ISM Manufacturing data with losses peaking just after the noon hour.  10yr yields hit a new long term high at 4.701 and MBS lost just over half a point.

Econ Data / Events

S&P Manuf. PMI

49.8 vs 48.9 f’cast, 47.9 prev

ISM Manuf. PMI

49.0 vs 47.8 f’cast, 47.6 prev

ISM Manuf. Prices

43.8 vs 48.6 f’cast, 48.4 prev

Market Movement Recap

09:24 AM weaker overnight. 10yr up 6.4bps at 4.643 and MBS down 10 ticks (.31).

10:26 AM Some additional weakness after PMI data.  MBS down 11 ticks (.34). 10yr up 7.7bps at 4.656

04:15 PM 10yr up 11.4bps at 4.693, highest since 4.701 seen at 12:10pm.  MBS down 19 ticks (.59) in 6.0 coupons. 

Lenders could gain efficiencies from advances in artificial intelligence as the related development of alternative data potentially opens up the market to more borrowers, but hurdles exist.

In July, month-to-month missed payments increased but improved on an annual basis because a lower share of borrowers were 90 days or more late.

Flood insurance could hold up some home sales and lending, while major bank regulatory agencies will remain funded even if the government is unable to pass a funding bill before funding runs out Sept. 30.

The rise in the number of reductions runs against typical seasonal norms, Redfin said.

Commercial real estate borrowers, including vulnerable office tower landlords, are increasingly struggling to make payments and, as a result, more lenders are expected to report higher credit costs.

It depends quite a bit on the lender in question, but at some point between yesterday morning and this morning, the average lender dropped rates at the fastest single-day pace in months. Before you get excited, there’s a catch–two or three of them actually. The first catch is that some lenders split that improvement between yesterday afternoon and this morning.  The more general catch is that these sorts of “biggest drop in a long time” observations are almost always seen after rates have just surged to “the highest levels in a long time.”  That’s absolutely the case this time around. The third catch isn’t too important. It involves a bit of deterioration in the bond market resulting in some lenders bumping rates slightly higher this afternoon.  The average lender is still in much better shape than yesterday morning (and much worse shape than most any other morning going back to June 2001).  Moving on from “catches” to plain old frustrating uncertainty, mortgage rates need new economic data in order to improve.  Specifically, rates would need to see less resilience and growth in the economy.  Frustratingly, the government shutdown (which looks likely if not certain as of this writing) would prevent several of the most important reports from coming out next week. Granted, if those reports had come out strong, they would push rates higher, but as it stands, we don’t even have an opportunity for meaningful improvement.

Bonds Almost Hold Onto Gains Ahead of Shutdown Uncertainty

Bonds improved moderately overnight, adding onto what was already a fairly substantial recovery yesterday.  The morning’s PCE data was slightly lower than expected, but bonds didn’t seem unequivocally happy about that.  There was a modest extension of the rally and then a slow give-back into the PM hours.  Trading was very flat near unchanged levels after noon ET.  Month/Quarter-end tradeflows are assumed to be underpinning some of the volatility of the past 3 days, as is the uncertainty surrounding the government shutdown.  The most direct implication for bonds is that  they must navigate the most important data week of the month without the most important data (no jobs report or JOLTS next week due to the shutdown).

Econ Data / Events

Core PCE m/m

0.1 vs 0.2 f’cast, 0.2 prev

Core PCE y/y

3.9 vs 3.9 f’cast, 4.3 prev

Market Movement Recap

08:46 AM Moderately stronger overnight with some additional improvement after data.  10yr down 5+bps at 4.524.  MBS up just over a quarter point. 

11:11 AM Giving up some gains.  MBS off a quarter point from highs, but still up nearly an eighth on the day.  10yr still down 4bps on the day but up 3bps from lows. 

03:13 PM Weakest levels of the day for 10s, up 1bp at 4.588.  Weakest liquid levels for MBS, down an eighth of a point in 6.0 coupons.