Bonds were initially stronger, then weaker in the overnight session.  There was a bit of additional selling in the first hour, but none of it corresponded with the 8:30am Durable Goods data. Notably, the data was much weaker than expected.  This helps reinforce our lack of interest in this particular report as a potential market mover. Bigger volume followed a series of Trump comments just after 9am ET. Trump said he’s meeting with UK prime minister tonight, he doesn’t ever want a weaker dollar (incidentally, this is at odds with wanting rate cuts), he got the impression that Powell might be ready to lower rates, Powell is a very good man, most trade deals will be done by August 1, and that there’s a 50/50 chance of a trade deal with the EU.  Your guess is as good as ours as to which of those accounted for the volume spike and bond reversal, but the EU comment lined up the best.  Either way, movement has been too small to really care.

It’s no great secret that the outgoing week didn’t offer much in terms of hotly anticipated events with the power to make or break momentum in the rate market.  But as it happened, there was ultimately no impact whatsoever by the time Friday afternoon rolled around.  Actually, rates were already ‘unchanged’ on the week as of yesterday afternoon.  Friday just happened to be unchanged as well. In terms of the bond market movement underlying the mortgage rate stability, we got some help from headlines regarding the improvement in relations between the Trump admin and Fed Chair Powell.  After touring the Fed’s construction site, the President said these sorts of cost overruns happen and he doesn’t want to put them in the category of “grounds for removal,” nor is there any pressure for Powell to resign. In general, the bond/rate market has done better during the moments where it looks like Powell’s job is safer.  Conversely, longer term bonds/rates have done worse when faced with the prospect of a Fed Chair replacement that would lower short term rates more aggressively (seeming paradox, but actually quite logical to bond traders).  For every degree to which the present week was calm and uneventful for rates, next week brings the heat.  There are big ticket events on every single day and the biggest of tickets in the form of Friday’s jobs report.  As always “potential” volatility doesn’t guarantee a big move in either direction.  All we know is that odds are higher for big moves–especially after Friday’s data.

Bonds Brace For Stormier Weather After This Week’s Smooth Sailing

Despite a few inconsequential ups and downs, bonds ultimately traded with forgettable, sideways momentum this week. Friday did nothing to change that–especially after mid-day gains courtesy of optimism surrounding over-the-weekend trade talks between the U.S. and the EU. The gains corresponded with the news headlines about the U.S./EU meeting and bonds held steadily sideways after that. The incoming week is completely different in terms of calendar-based volatility potential.  There are relevant events on every single day culminating with “peak relevance” in the form of Friday’s big jobs report. 

Econ Data / Events

Durable Goods

-9.3 vs -10.8 f’cast, 16.5 prev

Core Durable Goods

-0.7 vs +0.2 f’cast, 2.0 prev

Market Movement Recap

10:48 AM Moderately weaker overnight and sideways to slightly stronger in the first few hours.  MBS only down 1 tick (.03) and 10yr up 1.1bps at 4.409

01:31 PM Solid gains starting just after noon E.T. on US/EU trade talks set for Sunday. MBS now unchanged and 10yr down 1.4bps at 4.383

04:34 PM Mostly holding gains into the close.  MBS up 1 tick (.03) and 10yr down 1.1bps at 4.387

If you want to see an unscripted moment where politics and the central bank collide, thank Ken Sonner for sending over this clip of President Trump and Fed Chair Powell addressing the press. (Complete with pressure for lower rates, a misstatement of the cost, and with the President taking his hard hat off because “there’s not too much danger.”) Every president through history has wanted lower rates to spur growth; Robbie Chrisman is in Rapid City, South Dakota, where he reports that growth is surging, which appeals to some but not those who “liked it the way it was.” Interest rates may be a topic on today’s episode of Last Word at 10am PT, Brian Vieaux, Christy Soukhamneut, Kevin Peranio, and Courtney Thompson. They will certainly explore the real factors driving up loan origination costs, focusing on sales compensation rather than just credit or insurance. They’ll also examine the housing market’s mixed signals, including rising refi activity, steady rates, and the implications of record-high home prices amid growing inventory and price cuts. (Today’s podcast can be found here and this week’s podcasts are sponsored by Wholesale Mortgage Direct (WMD), whose mission is to deliver high demand, innovative products unique to the wholesale industry, including MyEQNow, which is one-of-a-kind TraDigital HELOC platform. WMD is your trusted partner for innovative HELOC, NonQM and/or Reverse options. Today’s has excerpts from an interview with the MBA’s Bob Broeksmit on Mortgage Matters earlier this week addressing a variety of current action items on MBA’s docket.)

FHFA’s surprise approval of VantageScore 4.0 raises concerns over data, implementation hurdles, and the politicized push to reform mortgage credit scoring, writes the Chairman of Whalen Global Advisors.

The sale of SIMPL marked a natural evolution of the software platform that will allow it to reach its full potential, one of its developers said.

President Trump and Senate Banking Committee Chair Tim Scott, R-S.C., visited the Federal Reserve Board headquarters Thursday afternoon to inspect ongoing renovations whose cost overruns have heightened scrutiny of Fed chair Jerome Powell.

The case pitted high-profile senior-tranche investors like PIMCO against junior bondholders the interpretation of contracts that predated later policy changes.

Habib’s placement on the Fannie Mae board comes after he criticized Federal Reserve Chairman Jerome Powell in a Linkedin post.

After falling for 5 straight days leading into Tuesday, mortgage rates have now moved slightly higher on each of the past two days. As was the case with the improvement, the bounce back has been exceedingly modest in its pace. In fact, most borrowers will be seeing the same rates today vs last week with only minor changes in upfront costs. Today was the only day of the present week with any meaningful economic data. This is relevant because rates are based on bonds and economic data is a key source of motivation for bond movement, but it depends on the data in question.  For instance, next week’s big jobs report on Friday is guaranteed to result in some of the highest-volume bond market trading of the month.  It also has a higher chance than any other scheduled report to cause a big move in one direction or the other.  Contrast that to this week’s economic calendar and it’s a completely different story.  Even if we added every scheduled event together, it still wouldn’t surpass next week’s jobs report in terms of potential rate impact. This morning’s Jobless Claims report (NOT the same as next week’s much more important jobs report) was the first time this week that bonds even visibly reacted to data.   Jobless Claims were lower than expected. A stronger labor market tends to coincide with higher rates, all else equal. In today’s case, it made for a slight bump, but no major drama. After bottoming out on July 1st and bouncing higher through July 8th, rates have generally been sideways.   [thirtyyearmortgagerates]