But the mortgage unit of Intercontinental Exchange narrowed its quarterly losses and touted the addition of several new customers this year in its earnings call.

The bond market–which dictates interest rates–had a generally favorable response to yesterday’s update from the Federal Reserve.  While the Fed didn’t cut rates, and while they’re increasingly acknowledging that rate cuts are moving farther into the future, they still think data will evolve in a way that results in the next move being a cut as opposed to a hike. Positive momentum continued today, in spite of several economic reports that argued the opposite case.  Had these reports been top tier market movers, the counterintuitive victory would have been highly unlikely. Friday is a different sort of day in terms of economic data.  The big monthly jobs report is in a league of its own when it comes to labor market data, and while it may not currently be the most important report on any given month, it’s a consistent 2nd place behind CPI.  After the jobs report, we’ll get a strong 2nd tier contender in the form of ISM’s service sector index.   These two reports have the power to accelerate or reverse the friendly tone seen in rates over the past 2 days.  As for today, the average lender inched just barely to the lowest levels since April 12th.  This wasn’t the case in the first half of the day, but as bonds improved, many lenders were able to issue mid-day reprices. 

Counterintuitive Rally And Asymmetric Risk

Bonds began the day in slightly stronger territory and managed to hold the gains after the early economic data which consisted of unfriendly readings in Challenger layoffs, Jobless Claims, and Q1 Unit Labor Costs.  All three spoke to ongoing labor market strength with the latter adding some inflationary fuel to the fire.  But the bond market is apparently tired of reacting to the alarming data from Q1 and March.  Instead, the perfect adherence to previously established technical levels (4.64 and 4.57 in terms of the 10yr) suggests intraday volatility was a factor of positioning and short-covering ahead of Friday’s jobs report.  There is some asymmetric risk potential on Friday considering how unfazed bonds seem to be by yet another unfriendly report (with the implication being a greater willingness to chase the bid on a downbeat jobs number). Just remember, the previous sentence tells us nothing about the direction of trading–only probable magnitude.

Econ Data / Events

Jobless Claims

208k vs 212k f’cast, 208k prev

Continued Claims

1774k vs 1800k f’cast, 1774k prev

Market Movement Recap

08:34 AM 10yr up from 4.592 overnight lows to 4.621 (still down 1.3bps on the day).  MBS are still up an eighth of a point, but down 2 ticks (.06) from the highs.

12:37 PM Some weakness into the 9am hour, but now at the best levels of the day.  10yr down 4bps at 4.593.  MBS up just over a quarter point.

03:18 PM Flat at best levels.  MBS up nearly 3/8ths and 10yr down 5.6bps at 4.578

Zillow Group Inc. shares fell after the real estate company published a second-quarter outlook that called for lower revenue in its core business and predicted stalling growth in the broader U.S. housing market.

Title insurers, whose activity is highly correlated to mortgage production, wrote $15.1 billion in premiums during 2023, down from $21 billion in 2022 and $26.2 billion for the year before that.

Both quasi-public mortgage investors have new requirements for when borrowers question valuations. Freddie Mac is expanding use of title insurance alternatives.

The Federal Open Market Committee held the federal funds rate at current levels, citing “lack of further progress” toward meeting inflation goals.

A new policy directive aims to fortify critical infrastructure by enhancing collaboration between U.S. intelligence agencies and systemically important financial entities.

Decent Data and Palatable Powell

Bonds managed modest to moderate gains after digesting all of the morning’s economic data and events.  None of the reports were too exciting and one might conclude that traders were slightly more interested in buying bonds regardless of the data.  Yields flat-lined in stronger territory ahead of the Fed.  The announcement itself was largely as-expected.  The same could be said of the press conference, but with the qualification that Powell definitely stopped short of expressing as much concern about inflation as the recent data justified.  Rate cuts aren’t likely any time soon, but the next move is still seen as much more likely to be a cut rather than a hike.  Markets also appreciated Powell’s reiteration that the Fed wouldn’t hesitate to do what it needed to do based on the data/economy without considering political implications.

Econ Data / Events

ADP Employment 

192k vs 175k f’cast, 208k prev

TSY refunding announcement

increases in shorter part of the curve
no increases in 10yr and up
small buyback announced

S&P Manufacturing PMI

50.0 vs 49.9 f’cast, 51.9 prev

ISM Manufacturing

49.2 vs 50.0 f’cast, 50.3 prev

ISM Prices

60.9 vs 55.0 f’cast, 55.8 prev

Market Movement Recap

08:59 AM unchanged overnight and modestly stronger after ADP/Treasury.  MBS up an eighth.  10yr down 2.3bps at 4.66

09:46 AM Slightly stronger leading up to S&P PMI.  No reaction afterward.  MBS up 7 ticks (.22).  10yr down 3.2bps at 4.65

10:05 AM No major reaction to 10am data. 10yr yields are down 4bps at 4.643 and MBS are up nearly a quarter point.

02:18 PM Modestly stronger after Fed.  10yr down 4.2bps at 4.462.  MBS up a quarter point

02:47 PM Additional gains as Powell press conference continues.  MBS up half a point.  10yr down 10bps at 4.587

Wednesday brought a full schedule of events and data for the bond market to digest and bonds dictate day to day changes in mortgage rates.  The morning’s data was perfectly palatable, resulting in modest strength heading into the afternoon’s Fed announcement. Contrary to impression given by many news headlines on Fed day, there is rarely any significance to the Fed’s actual decision to hike/cut/hold steady at any given meeting by the time the meeting actually happens.  Markets will have long since priced in the likely outcome based on economic data and Fed policy transparency. In other words, it was a surprise to no one that the Fed held rates steady at this meeting.  Bond traders tuned in for other reasons–mainly to hear what Powell had to say at the 2:30pm ET press conference. There were a few ways Powell could have framed the recent set-backs seen in inflation data.  Some analysts thought he might say more to entertain the possibility of rate hike instead of a rate cut.  Powell (and, indeed, the Fed announcement itself) definitely acknowledged that inflation data meant a delay for the Fed’s next move, but in the press conference, Powell reiterated that the next move was much more likely to be a cut, based on the trajectory of the data.   Bonds improved and many mortgage lenders were able to re-issue slightly lower rates compared to the morning levels.  The average 30yr fixed rate is still elevated by 2024’s standards, but nicely lower compared to yesterday’s latest levels.