Bonds lost ground modestly overnight.  Contrast that to the past few trading sessions that have seen gains in Europe followed by selling in the US.  Then at the start of the domestic session, economic data added to the weakness, but not before a quick, paradoxical blip into stronger territory.  This was odd indeed, considering it followed another near-200k print in Jobless Claims (arguably a nail in the coffin of any prospective bond rally).

But now as PM hours approach, bonds are back to unchanged levels.  Comments from Fed’s Goolsbee have certainly helped as he basically said the Fed doesn’t need to stoke unemployment in order to tame inflation–a very timely thought on a morning with strong labor market data.  Fed Funds Futures offer some clues and confirmation as to the impact of the Fed comments.

Seen on someone’s laptop here in Phoenix: “If Pete Davidson can date a Kardashian, you can be a homeowner.” From a business viewpoint, if you think mortgages are bad, try NFTs. I don’t know what I was thinking, sinking my entire 401(k) into that sector a few years ago. My collection of fake, imaginary art is now worthless!? It’s good to keep things in perspective. If you think rates in the U.S. are too high, try being a lender in Pakistan (22 percent) or Turkey (benchmark rate at 25 percent.) Although buyers in the U.S. don’t have to contend with rates like that, what are the big concerns in the home buying experience? A sizeable portion believe that they will not be able to afford the mortgage payment. Almost as many believe that they won’t be able to save, or don’t have enough, for a down payment. Some think that their home will not be a good investment. And there is a portion who believe that they can’t trust the real estate agent or the lender. LOs certainly have their work cut out for them. (Today’s podcast can be found here and this week’s is sponsored by Built. Built is powering smarter and faster money movement for the entire construction and real estate ecosystem, all while reducing risk. Hear an interview with Fidelity National Financial’s Chuck Cain on the controversy surrounding Attorney Opinion Letters in lieu of title insurance.) Lender and Broker Software, Programs, and Services Let’s face it: We’re all feeling the impacts of rising loan origination costs. What if you could come back from MBA Annual23 with winning strategies to help you optimize your cost management, boost your profitability, and take control of your bottom line by matching you with the right tools and workflows? With Certified Credit, you can! Certified Credit’s suite of Cascade solutions automates your lead generation, prequalification, VOE, and UDM processes to help you reduce origination costs. Plus, when you pair leading automation with milestone ordering, you take your efficiency to a new level, standardizing your workflows and mitigating errors and delays. Ready to learn how you can enhance your cost management and operational efficiency? Grab your spot with Certified Credit at MBA Annual23!

On a week-to-week basis, new application activity fell by 1.3%, with purchase volume off 2%, the Mortgage Bankers Association found.

The Department of Justice reached a $9 million settlement Wednesday with Westerly, R.I.-based Washington Trust over race-based lending discrimination and redlining in the state, saying the bank denied lending services to Black and Hispanic neighborhoods from 2016 to 2021.

Bank of America CEO Brian Moynihan said that consumer activity has slowed throughout the year, but should remain strong enough to position the economy for growth later in 2024.

The Consumer Financial Protection Bureau issued a mortgage report based on statistics from 2022 and is looking for ways to simplify the refinance process while considering changes to mortgage servicing standards.

The rise in rates — 10-year Treasury yields are up over a percentage point since mid-May — is one of a series of shocks buffeting what’s been a surprisingly resilient economy.

It’s with no great pleasure (none of any kind, for that matter) that we find ourselves in a position to report, yet again, that mortgage rates have sailed decisively to another new multi-decade high.  Today’s installment is fairly unpleasant given that the average lender actually began the day in slightly stronger territory only to be forced to increase rates at least once over the course of the day. As is the case any time rates start lower and are revised higher, the culprit is the underlying bond market.  Specifically, bonds started the day in stronger territory but ended up weakening significantly between 10am and 2pm ET.   Underlying reasons for that weakness are a matter of debate and confusion.  Some point to comments from Fed speakers or a delayed reaction to economic data, but there are good reasons to be skeptical of both explanations.  One of the only things that can’t be disproven right now is the sense that the entire bond market has acquiesced to the notion of interest rates being “higher for longer” and simply can’t reach the “higher” destination all in one go.   In other words, the market believes the Fed and it sees the value in being cautious ahead of next week’s important economic data.  Traders have apparently decided it’s less painful to err on the side of higher rates and be forced to buy more bonds in the future (buying = lower rates, all other things being equal) than to be caught on the wrong side of the “higher for longer” trade yet again. 

What is “Repricing” in The Broader Context, And How is it Moving Markets?

We’ve been here before and we’ll be here again, but each time feels like a surprising new twist on what we think we know about bond market motivations.  The key word is “repricing,” and we’re not talking about lender rate sheets.  In this context, repricing refers to a broad understanding among certain market participants that rates need to move higher than they’re reasonably able to move in one trading day.  This results in seemingly paradoxical weakness that’s not obviously connected to data or events in a timely way.  Granted, data and events can help explain the weakness, but only in hindsight.  In other words, this is the type of selling momentum that sends analysts looking for explanations as opposed to the type that follows logically from new developments in data and events.

Econ Data / Events

Durable Goods

0.2 vs -0.5 f’cast, -5.6 prev

Nondefense, excluding aircraft

0.9 vs 0.0 f’cast, -0.4 prev

Market Movement Recap

08:46 AM Moderately stronger overnight and holding so far.  10yr down 4.7bps at 4.503.  MBS up just over an eighth.

10:28 AM Giving up some gains now.  10yr down only .6bps at 4.54 and MBS down an eighth of a point, with several ticks accounted for by illiquidity. 

01:09 PM Weakest levels of the day.  10yr up 5bps at 4.601.  MBS down almost 3/8ths. 

02:52 PM More selling.  10yr up 7.6bps at 4.626.  MBS down 3/8ths+

Normally, when the bond market is in a pervasive selling trend, we’ll see a day or two of reprieve amidst the carnage.  Frequently, such days are friendly enough to lead to questions about whether they’re evidence of a bounce.  At the very least, when trading levels are much stronger on the morning after several days of big selling, the gains tend to do an OK job of sticking around through the close.  But that has definitely not been the case over the past two days.  Today is shaping up to be a simple carbon copy of yesterday, albeit with a bit of extra oomph. 

It’s possibly notable that the weakness is a centered on the center of the yield curve.  This could indicate some concession selling ahead of the 5yr Treasury auction, but that alone would not account for the reversal seen so far today.  More notable is the adjustments in Fed Funds Futures where traders are pricing in another 5-6bps by next year.  That’s the biggest move up since last week’s Fed announcement and it began around the same time the broader bond sell-off began.  
We don’t ever love oil prices as an explanation for intraday market movement, but the jump from yesterday’s lows could be getting some attention and contributing to strategic trading decisions that didn’t hit the market until the 9:30am NYSE open.

Last but not least, it is “month-end” on Friday and early month-end position squaring could also be contributing.