It may seem like today’s bond market movement alone (3/8ths higher in MBS and 0.09% in 10yr yields) doesn’t explain the pace of improvement in mortgage rates. For that, we’d need to consider the arcane underpinnings of the mortgage-backed securities (MBS) market.  These are the bond-like instruments that represent large groups of mortgage debt that can be traded among investors. 
MBS are broken out into coupons in 0.5% increments.  Only certain mortgage rates are allowed in certain MBS coupons (think of them like buckets). The bucket that had been the most active could hold rates up to 6.625% and it is suddenly losing favor to the next lower bucket which holds rates up to 6.125%.
One need not necessarily understand all of that–just the implication that rates can drop more quickly than normal as they approach the upper limits of the next lower bucket. In other words, the recent stint of rates near 6.5% meant that the 6.625% bucket was hanging onto relevance and the 6.125% bucket was still a bit out of reach.  Now today, the 6.125% is vying for higher relevance, thus the slippery slide down toward 6.125%.
NERD ALERT: for those that truly desire the underlying specifics, the upper bucket is a 5.5% UMBS coupon which can accommodate rates from 5.75 to 6.625 and the suddenly more fashionable bucket is the 5.0% UMBS coupon which holds rates from 5.25-6.125. MBS investors desire a certain sense of certainty about how long the underlying loans will last before mortgage borrowers refinance. By exhibiting stronger demand for the 5.0% UMBS coupon (the bucket that tops out at 6.125%), investors are basically saying they’d rather sacrifice a bit of present-day rate of return in exchange for more certainty of collecting that rate of return for a longer period of time in a market where rates are falling. Reason being: if they bought 5.5 UMBS and mortgage borrowers refinanced in the near future, that principal would now need to be reinvested at rates that could be even lower than they are today.  
There’s an even deeper dive in the MBS Live knowledge base HERE.

Textbook Reaction With Minimal Volatility

The bond market’s reaction to today’s jobs report was a textbook example.  The job count was much weaker than expected, though not extreme, and revisions cast further shade on the recent employment trends. Bonds responded with a rally that was equally brisk and at no more risk of being labeled “extreme.” Case in point, MBS were only up .375-ish at today’s highs compared to the full point of improvement seen after the last jobs report. The absence of volatility after the initial move was nothing short of refreshing. Rare is the NFP day without any major lead changes or reprices.

Econ Data / Events

Nonfarm Payrolls

22k vs 75k f’cast, 79k prev

Unemployment Rate

4.3 vs 4.3 f’cast, 4.2 prev

Market Movement Recap

08:41 AM Stronger after NFP. MBS up a quarter point and 10yr down 6.1bps at 4.097

09:15 AM Rally continues.  MBS up 3/8ths and 10yr down 9bps at 4.069

12:53 PM Calmly holding strongest levels. MBS up 11 ticks (.34) and 10yr down 8.6bps at 4.071

02:48 PM Off the best levels by about an eighth with MBS up a quarter point and 10yr yields down 7.2bps at 4.086

The Fed looks at Twitter to gauge the financial sentiment out there? Yes: TFSI! The Federal Reserve certainly finds itself in a maelstrom these days… it’s as if we have nothing else to talk about. This weekend Robbie and I head to Boise for the Pacific Northwest Mortgage Lenders Conference where I’m sure the Fed and its members will be discussed, as will Texas Attorney General Ken Paxton and his estranged wife Angela who claim three houses as “owner occupied” similar to Fed Governor Lisa Cook. President Trump’s cabinet has members whose names have “mortgage fraud” attached to them. In addition, what about Pulte Homes, or Freddie Mac or Fannie Mae, which Bill Pulte oversees? Last week the Wall Street Journal questioned if it is only Democrats that fudge on mortgage applications. Or if mortgage misrepresentations are this common, it’s an indictment of Fannie Mae and Freddie Mac. (Let me know if you don’t have a subscription and want to read the article; I can send it along.) “Federal Housing Finance Agency (FHFA) director Bill Pulte has access to these files because he oversees Fannie and Freddie, which combined guarantee about half of single-family mortgages. If Mr. Pulte can flyspeck mortgage inaccuracies, why didn’t lenders or the two government-sponsored enterprises he regulates?” (Today’s podcast can be found here and this week is sponsored by Gallus Insights. Mortgage KPIs, automated, at your fingertips. Gallus allows you to turn data from your various databases and systems into automated business intelligence and actionable insights. Hear an interview with Gallus’ Augie Del Rio on cross-functional analytics and its evolving relationship with AI, as well as the true value of tech providers beyond data.)

It’s a well-known fact that the monthly jobs report is more capable of causing big reactions in rates than any other economic data. It happened last month in grand fashion, and it is happening again this morning.  Nonfarm Payrolls (NFP), which is a count of new jobs created, came in at a mere 22k for August versus a median forecast of 75k. This is actually not the biggest miss when it comes to NFP, but it’s big enough to spark a reaction in the bond market. In general, weaker jobs numbers prompt investors to buy bonds. When investors buy bonds, the price of those bonds goes up. When bond prices go up, rates go down. Today’s net effect is an average top tier 30yr fixed rate drop from 6.45% yesterday to 6.29% today. This is back in the same range as the low rates in the Fall of 2024. [thirtyyearmortgagerates]

It’s a fairly straightforward morning with NFP coming in much weaker than expected with additional net-negative revisions to the previous 2 months. The only real caveat is that the unemployment rate suggests a more gentle softening of labor market conditions–a fact that likely accounts for 10yr yields “only” being 6-7bps lower in the first half hour of post-NFP trading.  The other way to account for it is to say that bonds had already rallied from 4.3 to 4.16 in the 3 days leading up to this morning.  That overall move is about the same size as the 8/1 post-NFP rally. Either way, bad news for labor market is good news for rates.

Stephen Miran will take unpaid leave from and might seek to return to President Trump’s Council of Economic Advisers, he said, raising conflict of interest questions in his nomination hearing for a seat on the Federal Reserve Board.

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The Justice Department has opened a criminal investigation into Federal Reserve Gov. Lisa Cook and allegations of mortgage fraud, allegations that spurred President Trump to terminate her position on the Fed Board last week. Cook is challenging the president’s authority to remove her in court.

The retail business in its hiring announcement touted its technology offerings and transparent compensation structure in attracting the originators.