Amid a complete absence of actionable economic data in the new week, stocks and bonds have been left to focus on new developments on the tariff front. It seems like only yesterday that the “90 day pause” went into effect and now, here we are 89 days later with some last-minute edits to the plan. Monday’s news involved letters to multiple trade partners announcing new tariff rates effective August 1st–basically a threat to make a deal or else. The more formal nature of the letters (as opposed to social media announcements) got the market’s attention despite general tariff fatigue.  At the times that stocks were falling, bonds were holding steady.  And when stocks held steady, bonds were losing ground. 

We’re in the summer travel season. TSA will be eliminating its “shoes off” policy, and many will be sampling today’s rollout of Spicy McMuffin breakfast sandwiches at Mickey D’s. My cat Myrtle was never a fan of the TSA, believing, perhaps, given her cynical nature, that their staff was filled with Walmart security guard rejects. (Did you know that you can opt out of the TSA taking your photograph every time you go through security, with no consequences? You should.) If you travel to Washington, D.C., know that a) there are periods between the D and the C, and b) Fed Chair Jerome Powell heads up spending $2.5 billion renovating the D.C. office, with a “b.” The chances of a Fed rate cut in at the next policy meeting in late July plunged to just 5 percent following the jobs report because the Fed is seen as unlikely to lower its policy rate until the labor market weakens. On today’s episode of Capital Markets Wrap presented by Polly, panelists break down the latest jobs data and how the market responded, including what it could mean for the Fed’s next move. They’ll also cover current lock volume trends, along with a look at recent headlines around appraisal fraud in Baltimore and the importance of maintaining a diversified investor base. (Today’s podcast can be found here and this week’s is sponsored by Truework, the only all-in-one, automated VOIEA platform that helps mortgage providers achieve up to 50% cost savings with an industry leading 75% completion rate. Today’s has an interview with Polunsky Beitel Green’s Peter Idziak on the recent Senate Parliamentarian’s decision blocking efforts to defund the Consumer Financial Protection Bureau via reconciliation and the implications for the agency’s independence and the broader mortgage lending framework.)

New research from the Federal Reserve Banks of New York and San Francisco says markets put the odds of zero interest rates lower today than in the recent past, but economic uncertainty raises the potential for drastic cuts in the “medium to long term.”

Following deadly flash floods in Texas, the Office of the Comptroller of the Currency allowed national banks to close branches for safety.

Deadly flash flooding in Texas serves as a reminder of the tactics scammers and fraudsters use against both victims and charitable onlookers.

While more consumers expect purchase conditions to improve, potential job loss weighs on the mind of a growing number of likely homebuyers, Fannie Mae found.

Both government-sponsored enterprises also are tightening rules around condo and co-op loans in buildings that have been involved in insolvency proceedings.

The nation is gripped with the flooding in Texas, the loss of human life and property, and how best to prevent future similar occurrences given the increase in the severity of weather. (Fairway Independent has already donated $1 million to recovery efforts.) Texas is one of the leading models in the U.S. for growth and in lending. We’ve been saying that we have had a housing shortage for so long, in Texas and elsewhere, that any change to that narrative is almost ignored. Yet builders are having to cut prices to attract buyers, unsold inventory has moved higher, and homes are sitting with “For Sale” signs in their lawns for longer. Affordability continues to be an issue, but lenders can only do so much. The U.S. Federal Reserve doesn’t set mortgage rates, but it watches the same economic data as MBS buyers. The odds of a Federal Reserve interest rate cut later this month fell dramatically as new data showed strong growth in the labor market, diminishing the case for lower rates. (Today’s podcast can be found here and this week’s is sponsored by Truework, the only all-in-one, automated VOIEA platform that helps mortgage providers achieve up to 50% cost savings with an industry leading 75% completion rate. Today’s has an interview with Truework’s Ethan Winchell on reshaping income and employment verification through automation, while balancing speed, accuracy, and fairness in an industry ripe for digital transformation.) Products, Software, and Services for Lenders and Brokers

For the entire 2nd half of June, it was easy to be spoiled by the absence of volatility in mortgage rates. During that time, rates were either lower or unchanged every single day. The past few business days have been a different story. This began last Wednesday as the bond market began a small correction ahead of Thursday’s big jobs report.  A correction is a normal occurrence that often follows an extended run in either direction. They can be as short as a single day or they can mark bigger picture turning points. We’ll never know if last week’s correction would have been a one day affair because the very next day, the jobs report continued pushing rates higher.  At that point, rate movement was no longer a correction. Rather, it was a response to economic data.  Now at the start of the new week, there’s been some follow-through to last Thursday’s rising rate momentum (Friday was closed for the 4th), carrying the average mortgage rate to the highest levels since June 25th. That’s the bad news. The good news is that June 25th’s rates were the lowest since early April at the time.  

Correction Continues Despite Tariff Announcements

Bonds were moderately weaker to start the day and continued losing ground in the AM hours.  Just after noon, new tariff announcements caused a surge of selling in stocks. There was initially some buying in bonds, but not much, and not for long. Tariffs are a double-edge sword for bonds, as we’ve seen on several occasions over the past few months and today’s version was well balanced, ultimately leaving 10yr yields at similar levels before and after the news. Today’s weakness adds to the multi-day correction that began last Wednesday and accelerated after Thursday’s jobs report. Bond buyers may remain hesitant until getting through more of this week’s Treasury auction cycle.

Market Movement Recap

09:57 AM Modestly weaker overnight with MBS down less than an eighth and 10yr up 2bps at 4.367

11:09 AM Steady weakness continues.  MBS now down 5 ticks (.16) and 10yr up 3.4bps at 4.38

02:16 PM Holding sideways near weakest levels in the PM hours.  MBS down 5 ticks (.16) and 10yr up 4.6bps at 4.392

04:03 PM Still sideways near weakest levels.  MBS down 6 ticks (.19) and 10yr up 4bps at 4.387