Mortgage rates technically ticked a hair lower today, but it’s more accurate to view them as being broadly sideways. Some lenders issued improvements yesterday afternoon.  Those lenders were closer to unchanged this morning.   As of this afternoon, several lenders have already issued slight rate increases due to weakness in the bond market.   Bonds dictate rates. Today, bonds took cues from two main events in the afternoon.  The first was a scheduled auction of 10yr Treasuries. Auction demand was slightly weaker than expected. This pushes Treasury yields higher and Treasury yields correlate with mortgage rates.  An hour later, the Fed released the minutes from the last Fed meeting 3 weeks ago. The minutes painted a slightly less rate-friendly picture than was in place at the time. This created a bit of extra weakness in the bond market, but only by a barely detectable amount. All told, the bonds that specifically pertain to mortgage rates were right at the same levels seen during the same time frame yesterday afternoon.  In general, that will equate to mortgage rates being at the same levels as well.

Some Selling Pressure After Auction and Fed Minutes

There were no market-moving economic reports scheduled for today regardless of the government shutdown. That left the focus entirely on the afternoon events: the 1pm 10yr Treasury auction and the 2pm release of the Fed Minutes (a more detailed account of the Fed meeting 3 weeks ago). The auction was slightly weaker than expected, which accounted for most of the upward pressure in yields in the afternoon. The minutes didn’t help (even if they didn’t necessarily hurt). Notable comments included mention of a few members who would have been OK with no rate cut and a majority of members remaining concerned about inflation. 

Market Movement Recap

09:27 AM modestly stronger overnight and holding so far.  MBS up 2 ticks (.06) and 10yr down 2.4bps at 4.103

12:01 PM Near weaker levels.  MBS up 1 tick (.03) and 10yr down 0.9bps at 4.118

01:03 PM No major reaction to middle-of-the-road auction.  10yr down 1bp at 4.117 and MBS up 1 tick (.03)

01:59 PM MBS are 1 tick lower (.03) and 10yr yields are 0.4bps higher at 4.131

02:40 PM Slight additional selling after Fed Minutes.  MBS down 3 ticks (.09) and 10yr up 0.6bps at 4.133

While there are a smattering of Fed speakers on the calendar today, the morning comments are not likely to have an impact. In fact, the average Fed speech is a forgettable event these days as there are only so many ways to say “inflation is still higher than we want, but we’re feeling a bit more nervous about the labor market.” Other than that, it is only the 1pm 10yr Treasury auction and the 2pm Fed Minutes that have any potential relevance as far as calendar events are concerned. Bonds are off to a decent start and volatility has been light in the first hour and a half.

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Mortgage rates have been in a very narrow range for nearly 3 weeks with the last major move seen on September 17th and 18th following the Fed rate cut. Paradoxically but not surprisingly, rates actually moved higher after the Fed cut the Fed Funds Rate. Contrary to popular belief, Fed comments and policy changes are not the biggest consideration for rates. That honor goes to big ticket economic data like the jobs report.  Case in point, the rate drop in early September after the jobs report was bigger than the jump in rates following the Fed. Moreover, the post-Fed jump was driven mainly by upbeat economic data the following morning. With the government in shutdown mode, we haven’t had the same sort of heavy-hitting econ data–a fact that largely contributes to the recently narrow range. There was some non-government data today from the NY Fed that showed a weaker view of the jobs market among consumers, thus helping rates hold in line with yesterday’s levels. Before that data, rates were set to open the day slightly higher.

Bonds Turn Green After Econ Data and Treasury Auction

Bonds began the day in slightly weaker territory as yields continue to drift inside the narrow post-Fed range. The absence of big-ticket econ data is a key reason for the lack of volatility. But the lower-tier econ data can still move the needle as evidenced by this morning’s NY Fed Survey of Consumer Expectations. The survey showed a slight deterioration in attitudes about the labor market. Bonds moved into stronger territory after that and went on to hit the day’s best levels shortly after a well-received 3yr Treasury auction.

Econ Data / Events

ISM Biz Activity (Sep)

49.9 vs 51.8 f’cast, 55 prev

ISM N-Mfg PMI (Sep)

50.0 vs 51.7 f’cast, 52.0 prev

ISM Services Employment (Sep)

47.2 vs — f’cast, 46.5 prev

ISM Services New Orders (Sep)

50.4 vs — f’cast, 56.0 prev

ISM Services Prices (Sep)

69.4 vs — f’cast, 69.2 prev

Market Movement Recap

10:38 AM Modestly weaker overnight, but moving into positive territory now.  MBS up 1 tick (.03) and 10yr down 0.4bps at 4.142

11:56 AM Gains continue.  MBS up 3 ticks (.09) and 10yr down 2.7bps at 4.121

02:43 PM Temporary gains after strong 3yr auction, but back to pre-auction levels now.  MBS up 2 ticks (.06) and 10yr down 2.3bps at 4.125