NFP Threads The Needle, But Doesn’t Deliver a Rally

Things could have gone better or worse today following the release of the mighty NFP (nonfarm payrolls, the headline data point from the big jobs report).  NFP came in at 209k vs 225k forecasts which may as well have been “as-expected.”  That was a victory in a sense, if we were comparing it to yesterday’s ADP number (497k!).  Bonds rallied initially for exactly that reason, but then pulled back because 200k+ is still very solid–more than enough to keep the Fed on track to hike 2 more times in 2023.

Econ Data / Events

Nonfarm Payrolls

209k vs 225k f’cast, 339k prev

Unemployment 

3.6 vs 3.6 f’cast, 3.7 prev

Market Movement Recap

08:45 AM Slightly weaker overnight, nice bounce after NFP, gains now evaporating.  10yr up 2.7bps at 4.058.  MBS down an eighth.

09:38 AM Bonds fully erased gains, but are stabilizing once again.  10yr up 3.7bps at 4.064.  MBS down only 2 ticks (.06).

11:47 AM MBS back into positive territory, up 1 tick (0.03) and 10yr yields are nearly unchanged again at 4.036.

03:45 PM MBS back into negative territory, down 1 tick (.03) after being up as much as a quarter point.  10s are up 3bps at 4.062

What’s our Federal Reserve concerned about? I was in a restaurant last night in Truckee, California, and was shown the table and handed the menu. When the waiter came back five minutes later, he said, “While you were deciding, we raised our prices.” Okay, a little inflation exaggeration humor there, but things are certainly always changing. Remember when everyone thought Amazon or Zillow were going to take over lending? Zillow is shuttering its closing and title services division. Something else that always changes is the population: 10,000 people a day turn 62, and many are eligible for a reverse mortgage, and so many lenders and LOs see reverse being a growth field. (Carol Ann Dujanovich, VP/Director of Reverse Mortgage Operations with University Bank, is featured on today’s 30 minute Rundown at 12PM PT on what’s made its Reverse Platform successful over the years.) (Today’s podcast can be found here and this week’s is sponsored by Gallus, the premier business intelligence tool for the mortgage industry. With hassle-free insights and user-friendly functionality, Gallus empowers you to make faster, data-driven decisions for enhanced profitability. Hear an interview with Michele Kryczkowski on business development in the mortgage industry and the best way to support sales teams.) Lender and Broker Software, Services, and Products Check out Quorum Federal Credit Union’s Sizzling Summer Limited-Time Special Offers. With turn times as fast as 24-hours and expanded guidelines, including up to 90% on a Primary Residence and 80% CLTV on Second Homes and Investment Properties, we’ll help clear any financial hurdles. In addition, Quorum partners with an executed agreement have the opportunity to earn up to 2.00% borrower-paid broker compensation on the entire line amount. There are no minimum draws and no early termination fees. Terms and conditions apply. Contact your Quorum Account Executive, visit Quorum’s Partner Portal or email for more information.

Despite missing the forecast by just a bit, today’s NFP number is largely as expected (209k vs 225k f’cast and unemployment 3.6 vs 3.6).  Bonds initially cheered the fact that NFP was anywhere close to forecast in light of yesterday’s ADP number coming in just under 500k.  But a job count over 200k is still quite strong–perhaps not the conclusive evidence of “labor market cooling” that will deter the Fed from its hiking agenda.

Measures commonly used may not fully account for regional variations like those seen recently, a working paper by Federal Housing Finance Agency staff finds.

Eligible borrowers would receive a credit for up to $5,000 to pay for expenses like insurance, taxes and closing costs. The program comes months after fair-lending advocacy groups criticized KeyBank for its low rate of lending to Black borrowers.

A resilient U.S. economy, lingering inflation and comments from the Federal Reserve contributed to a 10-basis-point hike in the 30-year fixed rate, Freddie Mac said.

Churchill Funding is accusing Easy Financial of reneging on a master purchase agreement both companies signed in 2020.

The 30-year-fixed conforming loan rate was had its largest in over a month, contributing to the first decline in activity in four weeks, the Mortgage Bankers Association said.

It seems like just last week (because it was) we were commenting on the extreme LACK of volatility in the mortgage rate landscape.  Starting last Thursday, things have changed quickly, and today was the worst of the bunch. As is often the case, bad news for mortgage rates followed good news for the economy.  Several economic reports suggested more job growth and business activity than expected.  Since the Fed is looking for evidence of the opposite before it abandons plans to continue hiking rates, markets took this as an immediate comment on the likelihood of additional rate hikes. The reaction in the bond market was so severe that mortgage rates made their biggest move in weeks, jumping even higher into the 7% range.  At the same time lender rates were being published for the day, Freddie Mac released its weekly survey showing 30yr fixed rates still down at 6.81%–higher than last week, but nowhere near a reflection of the move we’ve seen since then. As always, keep in mind that Freddie’s survey has implied “points” (upfront loan costs that help bring the rate lower) that are not counted or reported, and also that it is an average of the 5 preceding days.   Tomorrow brings the big jobs report, which has even more power to change the rate landscape.  Notably, tomorrow’s number doesn’t always correlate with the number that hurt rates today, so there’s an equal chance of recovery or additional pain. 

Data Confirms Bond Market Fears

Yesterday’s recap suggested that bonds were bracing for impact from incoming economic data.  It turns out that much more bracing would have been needed to avoid a big sell-off.  Even then, it would have been hard to brace for an ADP ‘beat’ as big as the one we saw (497k vs 228k f’cast, 278k prev). With the big jobs report up tomorrow and NFP forecasts in the same territory, bonds were right back to “bracing” mode today. The surrounding data wasn’t quite as extreme, but none of it helped push back in a friendly direction. 10yr yields quickly crested 4% and MBS lost over half a point (nearly a full point at the weakest levels of the day). 

Econ Data / Events

ADP Jobs

497k vs 228k f’cast, 278k prev

ISM Services

53.9 vs 51.0 f’cast

ISM Activity index

59.2 vs 51.9 f’cast

ISM Prices

54.1 vs 56.2 f’cast

ISM Employment

53.1 vs 49.2 f’cast

Job Openings

9.8m vs 9.935m f’cast, 10.103m prev

Market Movement Recap

09:06 AM Only modestly weaker overnight, but heavy losses after data.  MBS down 5/8ths and 10yr yields are up 10.7bps at 4.041

01:54 PM No major changes since the AM sell-off.  MBS down just over half a a point and 10yr up 11.9 bps at 4.053.

04:03 PM Illiquidity is the only thing moving MBS at this point.  Prices settling into a half point loss on the day.  10s up 10.5bps at 4.039.