Tricky Day… Mortgage Rates Fall Significantly, But Not Because of The Fed

There’s a distinct risk that, even in the financial community, that people will look back on today’s drop in interest rates and conclude it must have something to do with the Federal Reserve’s latest policy announcement.  After all the Fed did cut its policy rate by 0.25% today, and the Fed was the only big ticket event on the calendar. Unfortunately, almost all of the improvement in rates was in place well before the Fed announcement was released.  This isn’t a case of financial markets moving into position for an expected outcome either.  The Fed’s cut was 100% expected, and Fed Chair Powell had nothing too surprising to say (even if the delivery was memorable when he was asked if he’d resign if asked by the president). So why did bonds/rates improve so much? We have to apply the same logic to gains that we’ve applied to other election related volatility.  The election mobilized a massive (and massively volatile) amount of trading positions in the bond market and beyond.  We’ve seen several rate spikes that were just as bad as today’s rate drop was good.  All we could do with many of those was simply take them in stride and chalk them up to the exceptional volatility and highly charged environment. Today’s friendly volatility is a constant invitee to these episodes, even if it feels like it doesn’t show up as frequently as other guests. To some extent, this morning’s Jobless Claims data may have contributed, but it doesn’t make sense to give it too much credit until other data shows similar cause for concern (continuing jobless claims are up to the highest levels in several years).

Breaking Down The Big (Mostly) Non-Fed-Related Rally

Breaking Down The Big Non-Fed-Related Rally

As intraday charts give way to daily charts in the coming weeks, it will be all too easy to look back on today’s calendar and conclude that it could only have been the Fed announcement that was capable of motivating a 10+bp rally in Treasuries and a half point gain in MBS.  As we here in the past know, that rally was largely already in place ahead of the Fed announcement. We can’t chalk it up to the high continued claims number, though that may have helped. The simplest theory is that there are “dip buyers” in bonds now that the election is over.  It’s not a bad one, but we could just as easily say that a glacial drift toward higher rates got ahead of itself yesterday and fell back in line with the trend today.  Either way, MBS and mortgage rates have outperformed the move in Treasuries, and there’s at least a moment of hope for optimists to imagine an inflection point.

Econ Data / Events

Jobless Claims

221k vs 221k f’cast, 218k prev

Continued Claims

1892k vs 1880k f’cast, 1853k prev

Market Movement Recap

08:40 AM Slightly stronger overnight and little-changed after jobless claims data.  MBS are up a quarter point and 10yr yields are down 1.6bps at 4.415

12:35 PM Additional gains all morning.  MBS at best levels, up half a point. 10yr down 9bps at 4.34

02:27 PM unchanged to a hair weaker after Fed announcement.  MBS up 15 ticks (.27) and 10yr down 7.6bps at 4.356

03:11 PM 2 way trading after Powell press conference, but mostly stronger.  MBS up more than half a point and 10yr down 11.3bps at 4.318