Today’s inflation report (the Consumer Price Index or CPI) certainly had a chance to create volatility for rates, but things ended up staying fairly calm.  There are multiple subheadings of data that the bond market cares about when it come to CPI. Most of them were in line with expectations, or close enough to avoid surprising investors. The absence of surprise gave way to some improvement in bonds which, in turn, allowed mortgage lenders to start the day at just slightly lower levels.  Additionally, a higher reading in this morning’s weekly jobless claims report may have helped. Officially, the top tier 30yr fixed rate at the average lender just barely scratched out a new 11-month low, but most borrowers would see little–if any–difference compared to the past 4 days.

“All I know is what I read in the papers,” Will Rogers quipped. In news in the papers from our Census Bureau, AI use at large companies is in decline. “A dip in corporate AI adoption isn’t a great sign for an industry hellbent on world domination.” I am good at misunderestimating things, but will it go the way of blockchain (which is alive and simmering, but just not on the “front burner”)? This is a weak segue, but speaking of simmering, did you know that ChatGPT consumes an inordinately large amount of the world’s water supply? I wouldn’t say that AI or ChatGPT are fads, but I received this note: “We have experimented with corporate branding, management, mission statements, team building, you name it. None have really worked. The nice thing about markets like this is that they force you to face the fact that there are only a few things that actually work: expense cutting and extremely aggressive sales and marketing. And once you figure that out, you no longer fear markets like this.” (Today’s podcast can be found here and this week’s are sponsored by Indecomm. Streamlining operations with the genius blend of automation, AI, and services. Achieve practical digital transformation and real operational impact with Indecomm’s purpose-built mortgage solutions. Hear an interview with Outamation’s Sapan Bafna on how companies can streamline FHA modification workflows and eliminate compliance risks.) Services, Software, and Tools for Lenders and Brokers

It’s an interesting morning for economic data and the bond market’s reaction.  At face value, CPI was mostly in line with forecasts, but unrounded numbers were a bit hot (i.e. core monthly CPI was 0.346%, almost high enough to make for a 0.4 vs 0.3 reading). Additionally, monthly headline inflation was 0.4 vs 0.3. These numbers, in and of themselves, wouldn’t seem to suggest a bond rally.  At the same moment, Jobless Claims printed at 263k vs a 235k forecast–the highest reading since 2021. The initial conclusion is that there is enough labor market concern to offset still-elevated inflation, but a drop in supercore inflation (excludes food/energy/housing) may be the bigger factor.  Last month’s supercore, per Bloomberg, was 0.481.  This month, it fell to 0.330. This basically means inflation is standing aside and allowing the Fed to focus on the weaker labor market–a conclusion that’s far more informed by the last jobs report than today’s jobless claims.

Fairway Home Mortgage wants to give its loan officers tools to analyze data in order to spend more time helping their customers than going through paperwork.

Falling interest rates led to a rush in refinancing, but slowing purchase activity brought a decline in overall lock volumes, according to Optimal Blue.

Consumers are more interested in reporting rental pays to the credit bureaus as landlords become less involved, according to TransUnion.

Intent typically plays a key role in whether or not allegations that a borrower misrepresented a property’s status can be proved, mortgage industry experts say.

Treasuries rose, led by short-dated notes, after a reading on wholesale inflation came in weaker than expected, cementing bets that the Federal Reserve will start to cut interest rates next week.

Wednesday brought the first of this week’s two key inflation reports. While the Producer Price Index (PPI) is the lesser of the two in terms of potential impact on rates, it came in far enough below expectations to make for a measurable improvement. The catch is that the improvement in question pertains to the underlying bond market. Before the data, bonds were slightly weaker, thus suggesting slightly higher rates.  But lenders don’t release their rates for the day until a few hours of trading have commenced.  This leaves time for markets to react to early AM data such as today’s PPI. Bottom line, PPI helped bonds which, in turn, helped rates hold steady as opposed to drift a bit higher. 

Helpful Data and Treasury Auction Set High Bar For CPI

Another fairly straightforward day for the bond market with friendly econ data and a strong 10yr Treasury auction both helping push yields lower. If it seems like the size of the miss in the PPI data justified a bigger move, consider the fact that it’s an incredibly volatile data series. Additionally, last month’s PPI created “base effect” issues (i.e. it was so high that today’s -0.1% reading leaves the 2 month annualized level at 3.6%–still too high. Nonetheless, it was good enough news for bonds to push back against overnight weakness.  The afternoon’s 10yr auction helped bring yields to new lows for the day before ebbing slightly higher in the afternoon. Thursday AM’s CPI release is this week’s big to-do from a potential volatility standpoint.

Econ Data / Events

Core Producer Prices MM (Aug)

-0.1% vs 0.3% f’cast, 0.9% prev

Core Producer Prices YY (Aug)

2.8% vs 3.5% f’cast, 3.7% prev

Producer Prices (Aug)

-0.1% vs 0.3% f’cast, 0.9% prev

Market Movement Recap

09:24 AM Stronger after PPI data.  MBS up roughly 1/8th and 10yr down 2.8bps at 4.055

11:59 AM Best levels.  MBS up 5 ticks (.16) and 10yr down 3.7bps at 4.046

01:05 PM Strong 10yr auction prompts just a bit more buying in TSYs.  10yr now down 5.7bps at 4.026.  MBS still up 5 ticks in 5.5 coupons, but almost 3/8ths in 5.0 coupons. 

04:13 PM MBS now up 3 ticks (.09) in 5.5 coupons and 6 ticks (.19) in 5.0 coupons.  Both are down about an eighth from highs.  10yr down 3.8bps at 4.046