The bottom three cities have an average payback period on a 20% down payment of more than 78 months.

The reduction in employment followed a rise in rates this summer, but hiring has generally been stable since spring.

What’s Up With Friday’s Sell-Off?

Bonds lost ground today and it definitely wasn’t as simple as traders having second thoughts about the strength of today’s jobs report.  While it’s true that the 3.8% unemployment rate overstated last month’s shift (due to the rise in the participation rate), it’s also true that this is the first time since 2020 that NFP has been under 200k for 2 consecutive months (revisions are unlikely to change that, given the prevailing trend).  The lopsided nature of the selling pointed to yield curve considerations and the odd combination of positioning for an NFP Friday, a Friday before a 3 day weekend, and the first day of a new month all at the same time. It wasn’t officially an early closer, but the bond market got in and got out by lunch, leaving 10yr yields 7.5bps higher.  MBS only lost an eighth and change due to curve steepening (shorter-term yields fared better and MBS aren’t expected to be as long-lived as 10yr Treasuries).

Econ Data / Events

NFP

187k vs 170k f’cast, 157k prev

Unemployment 

3.8 vs 3.5 f’cast/prev

Participation Rate

62.8 vs 62.6 prev

Wages

0.2 vs 0.3 f’cast, 0.4 prev

ISM Manufacturing PMI

47.6 vs 47.0 f’cast, 46.4 prev

Construction Spending

0.7 vs 0.5 f’cast, 0.6 prev

Market Movement Recap

08:57 AM Initially stronger after jobs data but gains evaporating now.  10yr down only 1.1bps at 4.095.  MBS up 3 ticks (0.09), but down an eighth from the highs. 

09:43 AM Well into the red now with 10s up 3.2bps at 4.134 and MBS down almost an eighth. 

10:44 AM Weakest levels of the day with 10yr up 7.5bps at 4.18 and MBS down 3/8ths. 

03:09 PM Decent recovery after the last update with 10yr yields grinding down to 4.17% and MBS now down only an eighth of a point.

Bonds rallied out of the gate after the jobs report came out this morning.  Perhaps it was the fact that 187k isn’t much higher than the 170k forecast, or the 0.3% increase in unemployment. Bonds proceeded to promptly change their minds, quickly selling off and instantly erasing the last 2 days of modest gains. 
Perhaps it was the fact that 187k is more than high enough to meet the Fed’s expectations for the pace of labor market softening or that most of the unemployment uptick is explained away by labor force participation.
Moreover, perhaps bonds are looking beyond the jobs report, not to other data, but to the fact that it’s the Friday before Labor Day weekend in addition to being NFP day AND the 1st trading day of a new month.  Add 5bps of completely random volatility potential to 10yr yields for each of those three factors… no exaggeration. 
Notably, all of the morning’s ups and downs have coincided with moves in stocks.  There are two types of correlation between stocks and bonds: the kind most people think is normal where stock prices and bond yields move together, and the kind we’re seeing today where both sides of the market are gaining/losing together.

Is there significance here?  Not really.  It emphasizes the possibility that the market was trading the data’s implications for Fed policy (because the Fed trade tends to create this Rorshach effect in the chart).  2yr yields (more closely linked to Fed rate expectations) tell a similar story.

Some market watchers think the bounce in short term rates was driven by comments from Fed’s Mester.  That’s a possibility, but it’s hard to separate from the 9:30am NYSE open  due to the timing of the newswires (which start around 9:45am versus a short-end lift-off that started around 9:35am).

Some things in life are fleeting, like a frosty glass of rose, enemy troops singing Christmas carols in the trenches during WWI, or the time when lenders couldn’t hire people fast enough because rates were at 3 percent. I mention this because Krispy Kreme’s Strawberry Glazed Donuts, a flavor not seen in two years, is back today but only through Monday, in participating Krispy Kreme shops nationwide. Fleeting for donut aficionados. (Who says this commentary never has anything newsworthy?) Also fleeting are some astronomical events. Some will tell you that NASA doesn’t have much else going on besides coming up with the names of moons every month or two. Along those lines, thank you to Eric D. who pointed out that the common definition of a “blue moon” (the second full moon in any month) is wrong. It is the third full moon in a season that has four full moons per NASA. (Today’s podcast can be found here and this week’s is sponsored by Black Knight. Black Knight is an award-winning software, data and analytics company that drives innovation in the mortgage and real-estate industries, and the capital and secondary markets. Listen to an interview with Canopy Mortgage’s Tim Davis on why he signed on with an emerging fin-tech mortgage company and the role innovation and technology will play in shaping the mortgage industry’s future.) Non-Agency and High LTV Products Most lenders offer programs besides conventional conforming and government loan types. Of course, the cost of originating loans has been challenging for the jumbo and non-QM segment, where it takes more effort to underwrite a mortgage. Many programs don’t have industry-standard underwriting automation tools like Fannie Mae’s Desktop Underwriter and Freddie Mac’s Loan Prospector, which increases the cost of doing business. Meanwhile, on the demand side of the equation, banks and credit unions have pulled back on TPO platforms and products, exiting mortgage and warehousing, which creates an opportunity for LOs and brokers to take share from the banks who follow the puck to where it’s going and get in front of these changes.

The customers were affected by an incident involving a Progress Software program used by Sovos Compliance.

But some of the noise beneath the data suggests a possible transition might be underway, according to analysts.

Intercontinental Exchange Inc. can move forward with its takeover of Black Knight Inc. after the U.S. Federal Trade Commission accepted a binding settlement that will see key mortgage software products sold to rival Constellation Software Inc.

Two related cases the Supreme Court is considering hing on whether state laws preempt the National Banking Act on the payment of interest on mortgage escrow accounts.

New mortgage bonds now offer yields that are about 1.66 percentage point higher than U.S. Treasuries, according to data compiled by Bloomberg. That’s the most relative to corporate bonds in 17 years.