Minimal Selling Leaves Focus on CPI

The first order of business this morning was to reconcile the weaker NFP reading with the seemingly illogical bond market sell-off.  That was easy enough to do by the time we considered the solid drop in unemployment along with the big revisions to the past 2 months of payrolls. It was all the more palatable due to the modest size of the sell-off (especially modest as far as jobs report days are concerned). Thanks to the rally earlier in the week, bonds are still set to end the week at slightly stronger levels.  Bottom line, volatility is minimal. Next week’s CPI is the only other report that can hold a candle to NFP when it comes to rocking the bond market’s boat. 

Econ Data / Events

Nonfarm Payrolls

143k vs 170k f’cast, 256k prev, revised to 273k

Unemployment Rate

4.0 vs 4.1 f’cast, 4.1 prev

Participation Rate

62.6 vs 62.5 prev

Consumer Sentiment

67.8 vs 71.1 f’cast

1yr inflation expectations

4.3 vs 3.3 previously
big jump on tariff fears

Market Movement Recap

08:48 AM First move after NFP is weaker.  MBS down 5 ticks (.16) and 10yr up 3.7bps at 4.478

10:57 AM off the weakest levels after Trump’s reciprocal tariff headlines.  MBS still down a quarter point and 10yr up 4.8bps at 4.489

01:05 PM Classic PM sideways fizzle in progress.  MBS still down a quarter point and 10yr drifting sideways just under 4.50.

As always, the jobs report matters. Today, we’re seeing an obvious reaction to a fairly minimal miss (143k vs 170k f’cast in the headline job count). If that was the only data point in the report, bonds would likely be rallying. But after considering the other data, traders have been more inclined to sell. A full and detailed assessment of this other data would be both mind-numbing and voluminous. Here it is in a nutshell. Revisions to the past two months more than offset this month’s miss. Note the 3 month moving average of payrolls moving higher:

Bigger picture annual revisions took away fewer jobs than expected, and actually added jobs to the past few months.

The unemployment rate ticked down even though more people entered the workforce.

The prime working age employment to population ratio has continued to erase the late 2024 slide that had the Fed concerned enough to cut 50bps in September.  Bottom line: 143k pay not be a huge payroll number, but almost every other part of the report fails to raise any red flags that might contribute to higher rate cut probabilities.

“The San Diego Padres visited an orphanage in Mexico. ‘It’s really sad to see their faces with no hope,’ said Juan, age 9.” In other San Diego news, Optimal Blue wrapped up its Industry Summit this week. As with many events, the talk in the hallways was nearly as important as the actual sessions. The California fires were a topic, and this month’s piece in STRATMOR is titled, “Natural Disasters and Economic Resilience.” There were certainly conversations about data protection, state licensing flexibility and remote work, and remote online notarization. OB launched many new products, interestingly, at no incremental cost to their clients! Skateboarder Tony Hawk (age 56) was even there. Also of interest, of course, is the general business climate. Many have seen locks pick up somewhat in recent weeks. According to Curinos’ new proprietary application index, refinances increased 15 percent week over week and decreased 39% in January; the purchase index increased 15% week over week and decreased 33% for January as a whole. January 2025 funded mortgage volume increased 27% YoY and decreased 21% MoM. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. (Today’s podcast can be found here and this week’s is sponsored by Optimal Blue. OB bridges the primary and secondary mortgage markets to deliver the industry’s only end-to-end capital markets platform, helping lenders maximize profitability and operate efficiently so they can help American borrowers achieve the dream of homeownership. Hear an interview with the MBA’s COO Marcia Davies on how the MBA and mPower are helping the industry stay on track and lead the industry.)

Delinquencies are higher in one sector but overall pretax operating income is at a multi-decade high and adding to profit from originations.

On a GAAP basis, Intercontinental Exchange’s mortgage business has lost money for nine quarters, but a metric that includes Black Knight makes it profitable.

The 30-year fixed rate mortgage continues to slip away from the 7% mark, Freddie Mac said, but experts still expect them to stay higher for longer.

The 17.2% of mortgage borrowers nationwide with interest rates equal to, or greater than 6%, is the largest share since 2016, according to Redfin.

The mortgage arm of Rithm Capital saw profits surge in the fourth quarter, as the parent company looks to scale up before making any moves to separate.

“Nothing says, ‘I mean business’ than using a shopping cart at the liquor store.” We’re already 10 percent through with 2025, and residential lenders and vendors don’t know whether “meaning business” is spending their time watching Washington DC or trying to help their borrowers. Or both. Trump fired CFPB head Rohit Chopra and appointed Treasury Secretary Scott Bessent as Interim Head. Certainly there is this school of thought: Consumer ‘watchdog’ hounded US businesses, let’s shut it down. Bessent’s first action was to suspend everything the CFPB is doing. The agency suspended the effective dates for all rules that have yet to go into effect, pause all litigation (they are only allowed to file for continuances), and stop rule-making. They also were told to cease public comment. Meanwhile, yesterday it seemed like every trade group congratulated Scott Turner on his confirmation to serve as HUD Secretary. Ginnie Mae, for example, into which most FHA and VA loans are placed, is a government-owned corporation of the United States Federal Government within the Department of Housing and Urban Development. (Today’s podcast can be found here and this week’s is sponsored by Optimal Blue. OB bridges the primary and secondary mortgage markets to deliver the industry’s only end-to-end capital markets platform, helping lenders maximize profitability and operate efficiently so they can help American borrowers achieve the dream of homeownership. Hear an interview with Experian’s Joy Mina and David Fay on reducing pipeline fallout and improving loan pull-through rate.)

Yesterday was notable for being the first day in more than a week to offer any excitement for rates.  More notably, that excitement was the good kind.  The average lender moved back under 7.00% for top tier conventional 30yr fixed rates for the first time since December 17th, even if only by a scant 0.01%.   Today’s rates are effectively right in line with that, but officially 0.01% higher, and not for any interesting reasons.  The only major economic data consisted of weekly Jobless Claims–not to be confused with tomorrow’s immensely more important jobs report–coming in fairly close to forecasts. Tomorrow’s jobs report will be released at 8:30am ET, which is well before mortgage lenders update their rate offerings for the day.  As such, rates could once again see more meaningful movement as they did on Wednesday.  As always, major economic data doesn’t carry any connotation as to the direction of the impending movement.  Markets have already adjusted for their best guess on the results.  If the report is much stronger, rates would likely jump.  If it’s much weaker, rates would likely move back below 7%.