Stocks have made a bit of a round trip since last Friday when Trump’s tariff comments sparked a big sell-off.  Bonds benefited from that at the time.  So far this week, stocks have staged a solid comeback–especially today as upbeat earnings and Fed rate cut expectations provide support.  Bonds continue to rally on multiple Fed comments that focus on a weaker labor market underpin an increasingly clear rate cut picture.  Many market participants read yesterday’s Powell comments as endorsing another cut in October.  Bonds mostly had this priced in, but the absence of bad news is good news–at least good enough for more modest gains this morning. That said, gains are tougher to justify from here with yields pushing the lower end of the range boundary. 

Mortgage application activity declined again last week, though the drop was more moderate than the prior week’s pullback. According to MBA’s Weekly Applications Survey for the week ending October 10, total volume fell 1.8% on a seasonally adjusted basis and 2% unadjusted. The Refinance Index slipped 1% from the previous week but remains 59% higher than the same week one year ago. Refi activity has flattened out after September’s surge but continues to hold at elevated levels as some FHA borrowers take advantage of a rate gap of more than 10 basis points below conventional loans. “Mortgage rate movements were mixed last week, with the 30-year fixed rate decreasing slightly to 6.42 percent. Mortgage applications were lower than the week before, as conventional and VA applications saw declines,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “FHA applications saw a stronger week, and FHA refinance applications in particular increased 12 percent as the FHA rate stayed more than 10 basis points lower than the conventional fixed rate. Purchase applications declined for the third consecutive week but remained 20 percent ahead of last year’s pace as improving inventory conditions in certain markets continue to maintain homebuyer interest.” Purchase applications decreased 3% from the previous week on a seasonally adjusted basis and 2% unadjusted, but were still 20% stronger than a year ago. Activity continues to show resilience relative to last year’s depressed levels as buyers respond to slightly better inventory conditions.

The megabank’s multiyear effort to simplify its business model and improve its risk management is starting to pay off in the form of more consistent profitability and improved returns, CEO Jane Fraser told analysts.

The San Francisco-based banking giant reported a 9% annual jump in quarterly profits. It also made official its appointment of CEO Charlie Scharf as chairman.

If Experian eventually charges for VantageScore 4.0, it will be offered for at least a 50% discount compared to what Fair Isaac Corp. charges for its FICO score.

Lebda, who died over the weekend in an ATV accident, built one of the first online financial marketplaces in 1998.

Fannie Mae and Freddie Mac’s credit risk-transfers and some older private-label mortgage-backed securities have exposures to the Washington DC area.

Yields Hug Multi-Week Lows After Powell Speech

Bonds were remarkably resilient over the extended weekend given the moderate rebound in the stock market. As of Friday afternoon, yields and stocks swooned together in response to trade war escalation with China. Stocks recovered half those losses by 3pm, but were unchanged to slightly stronger. The morning hours suggested a modest sell-off, but buyers returned after Powell’s speech. He didn’t say anything that was obviously worth a rally, so perhaps it was the absence of hawkishness that helped.

Market Movement Recap

09:38 AM Losing some ground after stronger open. MBS down 1 tick (.03) and 10yr up 0.2bps at 4.036. 

01:11 PM Slightly stronger after Powell speech.  MBS up 3 ticks (.09) and 10yr down 0.2bps at 4.031

05:10 PM Little-changed at the close with MBS up 3 ticks (.09) and 10yr yields down 0.4bps at 4.029

Bonds are flashing red on the screen (depending on when you look), but even at their weakest levels of the morning, we’d still consider this a stronger start. Reason being: Friday afternoon’s rally lasted 10 whole minutes right at the end of the session. Before that, 10yr yields were around 4.06 and 5.0 MBS were trading just under 99.5. Now this morning, 10yr yields are in the mid 4.03’s and MBS are at 99.55–both easily stronger compared to the 4:50pm levels from Friday.

“Where do amputees get prosthetics on a budget? The secondhand store.” Budget, stalemate, and shutdown news continues in Washington DC. The sun still comes up in the morning, and there is news on related issues. For example, thank you to Sean S. who told me that HUD opened the suggestions window for improving the HECM (reverse mortgage) product. The reasons why Treasury and mortgage rates remain elevated despite the shutdown and Fed’s rate cuts will be discussed in the Capital Markets Wrap at 3PM ET, presented by Polly. In other shut down news, “USAA has stepped up for military service members and federal employees impacted by the government shutdown, delivering over $232 million in no-interest loans to about 62,000 members to date. As part of this program, eligible USAA members can apply for a no-interest loan equal to one net paycheck, up to $6,000. USAA has also processed tens of thousands of additional payment relief offers for banking and insurance products.” All the while, lenders and vendors are grappling with market shifts due to lack of economic news, interest rates, regulatory landscape (steady vs. being reactive), consumer behavior, and are participating in industry advocacy at the state or national level, thus giving them a voice. (Today’s podcast can be found here and this week’s are sponsored by Floify, an industry-leading point of sale platform. With Floify’s new Dynamic AI feature, lenders can modify applications with no coding required and rely on AI to autofill key application fields, allowing borrowers to fill out only a few fields relevant to their needs. Hear an interview with Tavant’s Mohammad Rashid on how automation and artificial intelligence will reshape customer experience, streamline operations, and address key lender challenges, positioning technology as the catalyst for modernizing and transforming the mortgage landscape.)