Fed Speakers and Auction Help Bonds Hold Steady

Bonds technically lost a small amount of ground today, but it’s just as fair to say that they’re holding steady on the week.  In fact, closing yields today were right in line with last Thursday’s closing levels.  This might not have been the case if not for today’s Fed speakers–several of whom reiterated dovish messages about being able to cut sooner rather than later. Other comments reiterated the notion that tariff-driven inflation should start to show up in next week’s data (further increasing the stakes for CPI). The Treasury auction wasn’t especially strong, but we occasionally see bonds improve simply because the auction cycle is over for any given week. While this isn’t a big move, one could argue that it also helped the afternoon mini-rally. 

Econ Data / Events

Jobless Claims

227k vs 235k f’cast, 232k prev

Continued Claims

1965k vs 1980k f’cast, 1955k prev

Market Movement Recap

08:39 AM MBS are down an eighth and 10yr yields are up 1bp at 4.345.

01:03 PM Pretty boring 30yr bond auction.  Sideways at weaker levels with MBS down 6 ticks (.19) and 10yr up 2.9bps at 4.365

02:30 PM Decent little bounce after Waller comments.  MBS down just over an eighth and 10yr up less than 1bp at 4.344

05:05 PM Modestly weaker at the close, but broadly sideways on the week.  MBS down 5 ticks (.16) and 10yr up 1.1bps at 4.347

You would be hard pressed to find a week with less to offer in terms of scheduled economic data.  In fact, it’s not an overstatement to say that regular old weekly jobless claims data was the only relevant report of the week. Unfortunately for fans of low rates, it’s not showing any signs of cracks in the labor market (227k vs 235k f’cast). Continuing Claims, while still elevated, also managed to remain below the longer term highs from 3 weeks ago. There hasn’t been a huge reaction in the bond market, but perhaps enough to say that we’re now in modestly weaker territory instead of being closer to unchanged.

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Correction to the Correction. Will it Last?

Hindsight is 20/20 and foresight may have been close enough this week given the classic correction to June’s rally giving way to a classic correction of that correction as early as Tuesday afternoon.  It wasn’t really until Wednesday that bond traders really showed their cards, buying early and often–well in advance of the afternoon’s 10yr Treasury auction or Fed Minutes.  In fact, it’s not clear that either of those events were necessary to today’s victory although the auction certainly had a more measurable impact. Data remains scarce on Thursday and foresight gets cloudy again.  In other words, anything that was remotely foreseeable has now run its course as we wait to see how narrow the likely-sideways range will be between now and next week’s CPI data.

Econ Data / Events

Refi Apps

829.3 vs 759.7

Purchase Apps

180.9 vs 165.3

Market Movement Recap

09:38 AM Consistent buying starting right at the 8:20am CME open. 10yr now down 3 bps at 4.38 and MBS up 2 ticks (.06)

12:25 PM MBS at best levels, up 5 ticks (.16) and 10yr down almost 4bps at 4.371

01:10 PM Very decent 10yr auction and some more improvement.  10yr yield down 5bps at 4.357 and MBS up 6 ticks (.19).

02:11 PM Modest improvement after Fed minutes.  MBS up 6 ticks (.19) and 10yr down 6.3bps at 4.343

04:15 PM Heading out at best levels with MBS up almost a quarter point and 10yr down 6.5bps at 4.341

It’s a bit of a stretch to refer to the past week as a “losing streak” for mortgage rates. The worst part about it was the consistency of upward movement starting last Wednesday. In terms of the  size of that movement, things have been less traumatic considering the average lender was still at the lowest levels since early April with the exception of the past 2 weeks. Perhaps it would be better-described as a “non-winning streak.”  In any event, it’s over. The underlying bond market was already showing signs that it was tired of pushing rates higher by yesterday afternoon. Now today, it’s clear.  Bonds moved into stronger territory early and kept improving throughout the trading session (stronger bonds = lower rates, all else equal). The change erases all of yesterday’s damage and a bit of Monday’s as well.  Despite the improvement today, be aware that there is never a guarantee about the future when it comes to potential shifts in rate trends. An optimist might conclude that bond traders recognized a buying opportunity after this little push toward higher yields, but it will ultimately require rate-friendly economic data next week to solidify the positive message.  Conversely, if the data is un-friendly, it could spark another “non-winning streak,” or worse.