Although there were flashes of potential volatility in the underlying bond market at times today, mortgage rates made it through unscathed.  In other words, the volatility wasn’t sufficient to force the average lender to make mid-day changes to the rates they decided to offer this morning. Whereas yesterday saw an inconsequentially small increase of 0.01% to the average conventional 30yr fixed rate, today saw just the opposite.  That means our rate index once again matches its lowest level since October 4th, 2024.  While this is undoubtedly a victory, rates would need to fall quite a bit more in order to hit the next milestone at the levels just one month earlier in early September (6.11% back then versus 6.57% today). An improvement like that would require multiple downbeat economic reports over the course of several weeks as well as lower-than-expected inflation readings.  Without that sort of data, there’s a risk that rates aren’t able to make much additional progress from here.

More Ground-Holding Despite Weird Intraday Spike

This morning’s commentary led with our desire to avoid jinxing this week’s flat, boring market movement with rates at long term lows.  But for a few minutes mid-day, it looked like the jinx was real. At 11:35am, yields shot 3bps higher in a matter of minutes and in exceptionally heavy volume. Several hours later and there are still no solid explanations for the mini-drama. Thankfully, explanations are less important after Treasuries fully erased the mid-day weakness.  Mystery moves like this happen.  They usually offer clues by end of the trading session, but traders/analysts only tend to ravenously pursue those clues when the day-over-day movement is much larger.  Since today’s wasn’t, this one will be forgotten and chalked up to a very small number of tight-lipped traders making very big moves that caused a mini mid-day snowball. 

Market Movement Recap

10:31 AM Initially weaker overnight, but rallying back since 5am.  10yr now roughly unchanged at 4.214 and MBS up 1 tick (.03).

12:18 PM Big selling at 11:35 and mostly stabilized now.  No explanations available.  10yr was over 4.25, but now up only 1.9bps at 4.233.  MBS are back to unchanged after being down an eighth of a point.

01:26 PM modestly weaker after 10yr Treasury auction.  MBS down 1 tick (.03) and 10yr up 3bps at 4.244

04:11 PM Heading out with MBS up 2 ticks (.06) and 10yr up 1.2bps at 4.226

We don’t want to jinx it, but this is turning out to be an uncommonly calm week of trading compared to other post-jobs-report trading weeks.  So far, it’s on track to have the narrowest range and the lowest week-over-week change of any recent example, regardless of the size of the NFP reaction. There’s not much to say about the market in the absence of movement or relevant data.  Today’s only possibly noteworthy event is the 10yr Treasury auction, and that’s a stretch. If we really strain to assign meaning, we could draw some conclusions about underlying bond trading sentiment based on whether or not we see any sort of selling spree heading into the auction. If there is no pre-auction concession AND if the auction stats are respectable, it would say a lot about the market’s intention to hold or improve upon current levels.

Groups like the Mortgage Bankers Association and National Housing Conference welcomed the decision to increase the secondary market for the credits.

Prior to the earnings release, Finance of America announced it was buying out Blackstone’s equity stake in the mortgage lender for $80 million.

Americans now hold a record $34.5T in home equity, fueling a surge in home equity loans as lenders race to capitalize on rising property values.

GSE loans acquired in the period have higher loan-to-value and debt-to-income ratios and lower credit scores, which Milliman said boosted serious default risk.

President Trump in an interview Tuesday morning railed against big banks for allegedly discriminating against conservatives, a notable shift in tone that puts more responsibility for the debanking debacle on banks rather than regulators.

Yesterday saw the average 30yr fixed rate fall back in line with levels from early October, 2024. This happened for two reasons. The broader, underlying reason is that rates have been in a fairly narrow, stable range and that range was already relatively closer to 10 month lows than 10 month highs. The more specific reason is quite clearly the market’s reaction to last week’s jobs report.  In other words, the prevailing range was the fuel and the jobs report was the match.  Little has changed so far in the present week as far as the underlying bond market is concerned. Mortgage rates happened to fall yesterday mostly because they weren’t able to fully adjust to bond market developments on Friday.  To a lesser degree, modest, additional improvement in the bond market left no doubt that lenders could drop rates just a bit more. Now today, bonds are even more ‘unchanged’ than yesterday.  Given that yesterday’s change was also modest, mortgage lenders didn’t have any catching up to do.  Thus, it’s no surprise to see the average lender effectively right in line with yesterday’s latest levels. Apart from yesterday (which is technically 0.01% higher), today’s rates are also the lowest in 10 months. 

Bonds Hold Steady After Modest Data-Driven Rally

Today’s (and to be fair, this week’s) only major econ data–ISM Services–was a mixed blessing for bonds this morning.  The only headwind was the uptick in the inflation component to another post-pandemic high. The tailwinds involved all other components suggesting a mild economic deceleration.  Traders ultimately gave more weight to the latter. Bonds were slightly weaker before the data, but ended the day closer to unchanged levels.  MBS outperformed, presumably due to Treasuries facing down another week of heavy auction supply.

Econ Data / Events

Trade Gap (Jun)

-60.2B vs -61.6B f’cast, prev -71.5B

S&P Global Composite PMI (Jul)

55.1 vs 54.6 f’cast, prev 52.9

S&P Global Services PMI (Jul)

55.7 vs 55.2 f’cast, prev 52.9

ISM Biz Activity (Jul)

52.6, prev 54.2

ISM N-Mfg PMI (Jul)

50.1 vs 51.5 f’cast, prev 50.8

ISM Services Employment (Jul)

46.4, prev 47.2

ISM Services Prices (Jul)

69.9, prev 67.5

Market Movement Recap

10:06 AM Slightly weaker overnight and little-changed after ISM.  10yr up 2.2bps at 4.215.  MBS down 2 ticks (.06)

01:08 PM No major reaction to 3yr auction.  MBS down 1 tick (.03) and 10yr up 1.1bps at 4.204

03:35 PM Flat in the PM hours.  MBS unchanged and 10yr up 1bp at 4.202