“Happy” 15-year anniversary of Lehman Brothers going belly up. “I was struggling to understand how lightning works and then it struck me.” One of the conversation topics here at the NAMMBA event in Orlando is how Florida has its share of estimated lightning strikes every year. (As does the rest of the nation: here’s a link to an interesting real-time map.) Another topic is Florida’s Senate Bill 264 which prohibits the direct or indirect ownership of specific categories of real estate by “foreign principals” from a foreign “country of concern,” defined as the People’s Republic of China, the Russian Federation, the Islamic Republic of Iran, the Democratic People’s Republic of Korea, the Republic of Cuba, the Venezuelan regime of Nicolás Maduro, or the Syrian Arab Republic… The Statute prohibits the acquisition of (1) any interest in agricultural land by a foreign principal, (2) any interest in real property located near a military installation or critical infrastructure by a foreign principal, and (3) any real estate interest by a foreign principal of the People’s Republic of China, subject to very limited exceptions. There are challenges, of course. (Today’s podcast can be found here and this week’s is sponsored by SimpleNexus, an nCino Company, and award-winning developer of mortgage technology for modern lenders. Hear an interview with Simple Nexus’ Lori Brewer on areas in the mortgage space that technology and innovation will impact most.) Lender and Broker Software, Products, and Services

Yesterday’s natural impulse for the domestic bond market would simply have been to move toward higher rates due to a raft of upbeat economic data in the morning.  While the data did indeed push yields higher, European trading helped to push back due a favorable reaction to the comments delivered with the ECB announcement. 

The shoe is on the other foot today after an uptick in French inflation and hawkish comments from an ECB official (and perhaps just a tradeflow-driven correction to yesterday’s EU bond market gains).  In plainer English, EU bond yields spiked overnight and pulled US yields along for the ride.  

The impact on things like servicing rights would raise costs even for lenders that aren’t banks, according to Mortgage Bankers Association President and CEO Bob Broeksmit. Others disagree.

Loan applications for single-family constructions jumped for the seventh month in a row, with increasing interest coming from first-time buyers, according to the Mortgage Bankers Association.

Rep. Andy Barr, R-Ky., pressed one witness to say that bank regulators’ Basel III endgame proposal, which would raise capital significantly for the largest banks, may have violated the Administrative Procedure Act.

Change can continue to originate loans through at least early December, after the U.S. Treasury Department agreed to extend a deadline to oppose the order.

The 30-year fixed moved 6 basis points this week as investors digested the news from the Consumer Price Index report.

Europe Helps US Bonds Avoid a Bigger Data-Driven Sell-Off

In a vacuum of “data dependency,” today should have been worse for bonds.  All three of the morning’s economic reports pointed toward higher rates.  After selling off for a few moments, trading levels returned to stronger territory on the day and stayed there for more than an hour.  It wasn’t until the afternoon hours that the modest weakness set in.  Incidentally, the afternoon is when Europe is closed for the day and US bonds fend for themselves.  Up until then, European bonds were helping suppress some of the logical weakness in US bonds due to a favorable interpretation of the ECB’s comments delivered with today’s ECB rate hike.

Econ Data / Events

Retail Sales

0.6 vs 0.2 f’cast, 0.5 prev

Jobless Claims 

220k vs 225k f’cast, 217k prev

Core Producer Prices

0.7 vs 0.2 f’cast, 0.4 prev

Market Movement Recap

08:47 AM Slightly stronger initially (ECB reaction), but now weaker after data.  10yr up 1bp at 4.264 and MBS down just over an eighth.

12:02 PM Some ups and downs, but mostly sideways.  10yr up 2.6bps at 4.28.  MBS down 2 ticks (0.06).

03:36 PM Weaker in the PM but very flat for MBS (down 5 ticks or .16).  10yr up 3.8bps on the day at 4.292.

Whatever is bad for the economy is typically good for interest rates.  That’s the grim irony for the mortgage market and it’s the reason you might find a crowd of rate watchers feeling good about downbeat economic data.  It’s not that they are happy about job losses or lower economic performance.  They’re just excited to be able to offer their clients lower rates. Today’s version of this dynamic was quite the opposite, however.  The economic data was friendly toward the economy, most notably with Retail Sales rising 0.6% versus a median forecast of 0.2%.  As far as rates are concerned, that’s unfriendly news.  Bonds (which dictate rates) immediately weakened after the data came out, but thankfully, not as much as we would have expected.  The x factor was a friendly interpretation of the European Central Bank’s (ECB) policy announcement.   The ECB is the European equivalent of the Fed.  They hiked rates, but the hike was fully expected.  In delivering the hike, their comments were taken to suggest it might be the last hike.  European bonds improved significantly, and while that doesn’t directly benefit rates in the US, there is always some spillover. In other words, the strength in the European bond market helped to limit the weakness in the US bond market.  Thus, rates moved higher today, but not as much higher as they otherwise would have.   Outright levels are still historically high with the average lender well into the 7% range for a top tier 30yr fixed scenario.  

If you had to guess at what this morning’s economic data would have done to the bond market ahead of time, current trading levels would almost certainly be a pleasant surprise.  In a nutshell, producer inflation was much higher than expected, jobless claims remained in the 220s, and retail sales surged to 0.6% vs a 0.2% forecast.  Despite al that, bonds are only modestly weaker.  Credit the global market’s response to today’s ECB announcement, best characterized as “a dovish hike.” 

Zooming in and focusing on Treasuries shows more of the timing of the morning’s important events: