Bonds Brace For Impact From Data

Bonds sold off somewhat abruptly on Wednesday with little by way of overt justification.  While it’s true that the Fed released the Minutes of its most recent meeting (3 weeks ago), there were no revelations and no new ways to think about the points that have been hammered home ad nauseum in recent weeks.  Perhaps more important is the fact that the sell-off was largely over by the time the Fed Minutes came out.  Were traders bracing for impact?  It’s actually easier to imagine that sort of trepidation in advance of the next two days of economic data.  After all, we know the Fed wants to resume its rate hikes if the economy evolves as expected and Thu/Fri data can do quite a lot to let us know how the economy is evolving. 

Econ Data / Events

ISM Manufacturing: 46.0 (exp 47.2; prev 46.9) – Prices Paid: 41.8 (exp 44.0; prev 44.2) – Employment: 48.1 (prev 51.4) – New Orders: 45.6 (prev 42.6)

Market Movement Recap

09:22 AM Boringly flat in the overnight session. Losing some ground now with 10yr yield up 1.8bps at 3.878.  MBS still up 2 ticks (.06) in 5.5 coupons

01:41 PM Weaker into the PM hours with US Treasuries leading the way.  10yr up 7.4bps at 3.934.  MBS down only 6 ticks (.19) on the day, but more than a quarter point from the highs.

02:20 PM Additional weakness after Fed Minutes, but not necessarily because of them.  MBS down 3/8ths.  10yr up almost 9bps at 3.945.

Hey, I’ve got news for you: 2023 is half over. Sometimes reality bites, and vendors and lenders can’t sit there, wringing their hands, waiting for things to get better on their own. Are lenders suddenly going to make huge margins on lots of volume in the second half? Are LOs who were doing 2-3 loans a month in the first half suddenly going to do 4-6? Are vendor reps suddenly going to double their clients? Are rates going to plummet? Is the number of houses for sale going to skyrocket? Banks, credit unions, and depositories are certainly doing something. An analysis of call reports shows that mortgage banking income at banks and thrifts increased by 36 percent on a sequential basis. JPMorgan Chase and Wells Fargo individually more than doubled their MB income from the fourth quarter to the first. Others, like Truist and PNC followed, as Inside Mortgage Finance points out. That said, to the surprise of no one, mortgage-banking income at banks and thrifts was down 38 percent from the first quarter of 2022. (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 Gallus Insights’ Augie Del Rio on how mortgage companies are best leveraging data in a high-rate environment.) Lender and Broker Software, Services, and Products

Also, Fannie Mae on climate risk and a non-QM product lenders are loving right now.

In their latest assessment of the bond market outlook, Morgan Stanley strategists are challenging the former head of the Federal Reserve Bank of New York’s view that losses are likely to deepen.

The transaction for the lending specialist ends a joint venture with Serva, which is a relocation services company.

The payment supplement partial claim the Federal Housing Administration proposed could be effective but not as is, according to the Mortgage Bankers Association and two other groups.

It’s been a tough housing market for first-time homebuyers. To ease their pain, VyStar has launched Dream2Own, which provides a credit simulator that doesn’t hurt these prospective borrowers’ credit scores.

The company, which is winding down operations, is seeking over $4.6 million from seven industry partners.

The other night my cat Myrtle began squeaking in her sleep and moving her paws. She was either dreaming about a Chupacabra, a CFPB exam, or the Department of Justice holding on line 2. Movement Mortgage, LLC, was caught up in the latter, and has agreed to pay the United States $23.75 million to resolve allegations that it violated the False Claims Act by “failing to comply with material program requirements when it originated and underwrote mortgages insured by the Department of Housing and Urban Development’s (HUD) Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA)… Movement Mortgage admitted that it certified for FHA mortgage insurance and VA home loan guarantees a material percentage of loans that did not meet applicable requirements and, therefore, were not eligible under those programs, despite inaccurately representing to HUD and the VA that such loans complied with applicable program requirements. Movement Mortgage also acknowledged that HUD and the VA would not have insured or guaranteed the loans but for its submission of false certifications. Movement Mortgage further admitted that it failed to adhere to HUD and the VA’s applicable self-reporting requirements.” (Today’s podcast can be found here and 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 Black Knight’s Frank Poiesz on how AI and associated technologies are helping streamline the origination process and what the future of originations looks like.)

Monday brings a courtesy trading day for bond market participants.  Those who want/need to trade can do so while those who wanted the 4 day weekend don’t need to stress too much about taking it.  ISM Manufacturing is the only big ticket econ data and it garnered a bit less than half the volume seen in response to last Thursday’s AM data. Unless something unexpectedly significant happens, the day is over as soon as it began and the opening commentary is also the closing commentary.