The Trend is Friendly For Now

A common financial market quip is that the “trend is your friend.”  We like to add the addendum: “until it’s not anymore.”  All we can know for sure is that bonds have shifted from range-bound to trending lower in yield over the past 3-4 days and today was just another confirmation of that shift.  What we can’t know is when the next show of resistance will happen and whether that will merely be a speed bump before additional gains, or a sign to circle the wagons and get sideways again.  Data wasn’t necessarily a huge factor in today’s improvement although it didn’t hurt. Bonds have an underlying vigor for other reasons, as evidenced by a solid 7yr Treasury auction today, despite yields being at the lowest levels in more than a month. Today’s video discusses some possible reasons for that. 

Econ Data / Events

Jobless Claims

236k vs 245k f’cast, 246k prev

Continued Claims

1974k vs 1950k f’cast, 1937k prev

GDP 

-0.5 vs -0.2 f’cast

Durable goods

16.4 vs 8.5 f’cast, -6.6 prev

Durables ex defense/aircraft 

1.7 vs 0.1 f’cast, -1.3 prev

Market Movement Recap

08:39 AM Bonds have moved just a hair weaker in response with MBS back to unchanged after being up 2 ticks (.06) and 10yr back to unchanged after being down just over 1bp at 4.283.

09:16 AM Quick reversal back into positive territory.  MBS up 4 ticks (.125) and 10yr down 2.4bps at 4.265

12:32 PM Best levels of the day ahead of 7yr auction.  MBS up 7 ticks (.22) and 10yr down 2.4bps at 4.265

03:21 PM Best levels of the day with MBS up 9 ticks (.28) and 10yr yields down 3.6bps at 4.252

Visually, the number of line items in this morning’s economic calendar may seem daunting. In fact, several of the reports sound like they should matter to the seasoned bond watcher (Durable Goods, GDP, etc). But as it stands, the biggest hour of trading volume this morning fell short of comparable examples from 3 of the past 4 sessions (sessions that had far less to offer in terms of calendar events). In addition, there are some mixed signals in the data that help offset bullish/bearish implications, thus leaving us fairly neutral to start the day.

The regulator and conservator of two influential loan buyers with government ties is considering digital currency’s increased use in qualifying borrowers.

The company gave no reason for his abrupt departure, which comes two months after the CEO of its parent First American Financial, Kenneth DiGiorgio, was fired.

Mortgage applications rose 1.1% last week, with borrowers most interested in FHA loans and refinancing.

The decision to relocate HUD headquarters comes after its current location had been included on a Trump administration cost-cutting list earlier this year.

As the Federal Reserve considers changes to the supplemental leverage ratio, Fed Board Chair Jerome Powell said that effort is one piece of a broader deregulation package that will also address the Basel III capital rules.

AI doesn’t have an NMLS number. (Zillow has never, ever set foot in a house for that matter.) Do you own a computer? Most in lending do. Elon Musk? I guess not. A courtroom twist in Musk’s war with OpenAI has revealed a stunningly bizarre detail about the self-described Techno King: His lawyers say that he doesn’t own a computer. (We know that President Trump has a telephone, and in fact the Trump Organization’s T1 phone is likely to be made in China.) A big topic at mortgage conferences is Artificial Intelligence. But AI seems to be becoming more lifelike. For example, Sesame AI is a “cutting-edge AI voice model that delivers natural and expressive speech synthesis. Perfect for content creators, developers, and businesses looking to add lifelike voices to their applications.” Send in some photos of yourself, and watch a film of you created saying the dialog you type in.) Scary. To no one’s surprise, a Microsoft study found that relying on AI kills your critical thinking skills. (Today’s podcast can be found here and this week 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. Today’s has an interview with Polunsky Beitel Green’s Marty Green on why Fannie Mae and Freddie Mac’s exit from conservatorship must be carefully structured to preserve market stability, and protect borrowers, lenders, and the broader economy.)

The average top tier 30yr fixed mortgage rate had already dipped to the lowest levels since May 1st at the start of the week.  Two additional days of modest improvement brings us to the lowest levels since April 4th as of today.   April 4th is probably a day that’s worth remembering.  If rates take out that particular floor, it would signify some more serious momentum toward lower borrowing costs.  Reason being: April 4th’s MND rate index was 6.6%–almost 0.20% lower than today’s 6.79%.   Rates jumped abruptly after April 4th as the bond market reacted to a sharply stronger jobs report. They continued higher the following week after the tariff “pause.”  Today’s improvement is really more a reflection of yesterday afternoon’s bond market strength.  As a reminder, lenders prefer to change their rates as infrequently as possible after setting them initially in the morning. If the bond market moves enough, they will issue mid day “reprices.” Many lenders did so in response to yesterday’s bond market gains, but in those scenarios, there tends to be a bit more left on the table. If the bond market holds reasonably steady overnight (as it did today), lenders can then pass along the additional improvement.

Mid Day Reversal Leaves Bonds Slightly Stronger

This morning, we noted the lightness of the selling pressure that took bonds into modestly weaker territory. It turns out it was so light that it was easy for bond buyers to get back on top un the afternoon hours. There was a bit of help from the Fed’s much-anticipated announcement of a change to banking rules that will effectively allow banks to hold more Treasuries than before.  This wasn’t a big market mover and its impacts would play out in the background over time, but it did seem to help to the tune of a bp or two today. With that, yields hit the 3pm close at their lowest  levels since May 7th, just barely edging out yesterday’s marks. 

Econ Data / Events

New Home Sales

623k vs 690k f’cast, 743k prev

Market Movement Recap

09:54 AM Flat overnight and modestly weaker just before the open.  MBS down 3 ticks (.09) and 10yr up 2.9bps at 4.321

12:51 PM Decent rally ahead of 5yr Treasury auction.  10yr up only 1.3bps at 4.305.  MBS down only 1 tick (.03).

01:43 PM No major response to 5yr auction.  10yr yields up 2bps at 4.312.  MBS down 2 ticks (.06).

03:45 PM Best levels of the day with MBS up 2 ticks (.06) and 10yr down nearly 1bp at 4.284