Absence of Data Leaves Focus on Technicals and the Waiting Game

The extreme dearth of big ticket economic data was no mystery heading into the current week. Traders shouldn’t have been surprised and they are doing a great job of showing it. Bonds traded ruthlessly flat yesterday and only slightly less so today. In the bigger picture, yields look to have bounced at 4.57 but also to be holding mostly sideways as they await inspiration for the next big move. For those who must connect movement to events, we can’t disprove that traders erred on the side of selling ahead of today’s 20yr bond auction, and were then more willing to buy after the reasonably decent auction results. 

Market Movement Recap

11:03 AM sideways to slightly stronger overnight, but losing ground since 9am ET.  MBS down 2 ticks (.06) and 10yr up 2.4 bps at 4.602

01:23 PM 20yr auction was relatively strong, but isn’t helping much.  MBS down 3 ticks (.09) and 10yr up 2.5bps at 4.603

03:10 PM Recovering a bit in the hours after the auction.  MBS down 2 ticks (.06) and 10yr up 1.3bps at 4.591

A fake image of Brad Pitt was used to scam a woman out of $850,000. (Hopefully every lender has set up policies and procedures regarding events like the CFO receiving an email from the CEO asking to blindly wire money for a “secret acquisition.”) Remember when you could buy a great house for $850k? Although Los Angeles will be under great strain for years, in many areas you still can buy a house for that, but home builders are reporting a rise in cancellations due to increased mortgage rates, which surpassed 7 percent for the first time in seven months. While builder confidence in the market for newly built single-family homes improved slightly in January, concerns about inflation, tariffs on building materials, and government deficits persist. The National Association of Home Builders forecasts modest growth in housing starts for 2025, but the ongoing impact of high mortgage rates is leading some builders to cut home prices, with 30 percent offering average discounts of 5 percent. (Today’s podcast can be found here and this week’s is sponsored by Lender Toolkit’s new Prism. Experience a quantum leap in accuracy and efficiency as you streamline workflows, reduce errors, and close loans faster. Prism’s advanced OCR boasts 99 percent accuracy across 1,450+ document types. Effortlessly index, analyze, and underwrite crucial data with their intelligent system. Today’s has an interview with Lender Toolkit’s Joe Sorbello and VanDyk Mortgage’s Lindsey Kuhnle on how companies can properly onboard and implement new tech offerings.)

Bonds rallied yesterday, largely in an attempt to catch up with the movement that occurred on Monday when cash trading was closed (futures and other markets implied moderate gains). In the slightly bigger picture, the recent gains have had most to do with last week’s economic data and a small amount to do with Monday’s executive orders surrounding tariffs.  It continues to be the case that bonds would need to see a marked downturn in economic data or inflation for any big, near-term rally.  Without that, technicals and supply/demand have increased significance.  With today’s 20yr bond auction (small though it may be) and the resistance at 4.57% in 10yr Treasuries, it’s not too surprising to see some early selling.

The Consumer Financial Protection Bureau released a proposed version of the consent order on Jan. 17 and the company involved said it was finalized that day.

Trump’s pick for treasury secretary commits to a thorough and careful recapitalization and release process for Fannie Mae and Freddie Mac.

Matthew Ammon served as interim secretary between January and March 2021, ahead of the confirmation of now-retired head Marcia Fudge.

Toronto-Dominion Bank is looking to adjust its balance sheet to comply with a new cap imposed by U.S. regulators, part of a plea agreement reached last year for its role in failing to prevent money laundering.

Bright Financial denied the allegations that the company and its affiliates paid kickbacks to real estate brokers and agents in exchange for referrals.

Bonds Calmly Hold Overnight Gains

This morning’s commentary focused on a bond rally in response to an absence of heavy-handed specificity in Trump’s initial salvo of executive orders–specifically with respect to trade policy. In not so many words, massive, immediate tariffs have been referred to agencies for research and comment. Bonds (via futures) rallied on the news yesterday and into the overnight session.  Without any new sources of inspiration today, the overnight gains remained intact and volatility was generally absent. 

Market Movement Recap

09:52 AM Moderately stronger overnight with implied gains on Monday in Treasury futures.  MBS up 6 ticks (.19) and 10yr down roughly 5bps at 4.577

01:32 PM Roughly an eighth of a point below best levels.  MBS still up 6 ticks (.19) and 10yr down 5bps at 4.577

03:43 PM Calmly holding gains.  MBS up a quarter point and 10yr down 6.2bps at 4.564

Trump issued numerous executive orders on Monday, but conspicuously absent was any specific directive regarding tariffs.  This was one of the key areas of focus for financial markets.  While there are few different ways it could be traded, one of the simplest was from an inflation standpoint. With specifics TBD, bonds breathed a modest sigh of relief on inflation implications.  There was an immediate reaction at 8:30am yesterday (in futures) following WSJ’s reporting on the tariff delay. There’s been some volatility in the interim, but bonds have managed to improve a bit more since then.