The bond market is scheduled to close 3 hour earlier than normal today–a common practice surrounding federal holiday weekends. This means 3 fewer hours where trading volatility can have an impact on mortgage rate movement.  Said more simply: the day is basically over when it comes to potential intraday rate changes. There is almost always a bit of rate movement overnight as mortgage lenders react to a new market landscape each morning. Today’s happened to be good news for rates, but not quite good enough to get the average top tier 30yr fixed scenario back under 7%. 7% rates aren’t new, but it’s been more than 3 months since we’ve seen them with any regularity.  Nonetheless, they are quite regular in the bigger picture over the past few years. With a long term high of 8.03% in October 2023 and a subsequent low near 6% about a year later, 7% is exceedingly “middle of the road.” 

The Mortgage Bankers Association’s (MBA) weekly application survey has been doing a good job of tracking with the more granular daily rate data from MND. Both are in agreement that rates were on their way up to the highest levels in several months last week–a fact that seems to have taken a toll on both purchase and refinance applications. “Mortgage rates jumped to their highest level since February last week, with investors concerned about rising inflation and the impact of increasing deficits and debt,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “Higher rates, including the 30-year fixed rate increasing to 6.92 percent, led to a slowdown across the board. However, purchase applications are up 13 percent from one year ago.” Here’s the full breakdown on MBA’s surveyed rates from last week:

30yr Fixed: 6.92% (+0.06) | Points: 0.69 (+0.01)

Jumbo 30yr: 6.94% (+0.09) | Points: 0.72 (+0.23)

FHA: 6.60% (+0.01) | Points: 0.96 (+0.07)

15yr Fixed: 6.21% (+0.09) | Points: 0.72 (+0.13)

5/1 ARM: 6.16% (+0.07) | Points: 0.36 (−0.38)

The notion that the enterprises could be a source of revenue has led to a suggestion that the funds from a public offering could be reinvested in housing.

The 14.3% rate for deals withdrawn in any April is the highest level other than in Covid-impacted 2020, as homebuyers reexamine the market, Redfin said.

Bond yields are shooting up for the second time in as many months. Federal Reserve Gov. Christopher Waller attributes the volatility to concerns about rising national debt levels.

Yields on the 10-year Treasury have been climbing because of the Moody’s U.S. downgrade, the tax bill under debate in Congress and possible GSE reform.

The Republican-led bill heading to the Senate extends and expands numerous business and consumer tax benefits included in Trump’s 2017 cuts.

Mortgage rates hit their highest level in just over 3 months yesterday with financial markets generally protesting the absence of more serious spending cuts in the spending bill.  Rates care about fiscal spending because higher spending requires higher Treasury issuance which, in turn, pushes rates higher, all else equal. Although the House passed the bill early this morning, financial markets were already fairly well braced for the impact. Now that the Senate is saying the bill likely won’t reach the President’s desk until late Summer, markets are able to pause and reflect.  One conclusion that some investors are coming to is that yields on US Treasuries are increasingly attractive as they move up through the 4% range (and in the case of 30yr bonds, the 5% range). When investors buy more bonds, it puts downward pressure on rates. As far as today was concerned, it didn’t amount to much in terms of movement versus yesterday. The average lender is just a hair lower, but still over 7% for top tier 30yr fixed scenarios.

Slightly Stronger Because Not Every Day Can be Weaker

Bond yields have moved almost exclusively higher in May. At the very least, they’ve been in an incredibly linear uptrend.  Uptrends wouldn’t last very long if there wasn’t some push and pull (think 2 steps forward, 1 step back).  And that brings us to the best case for today’s gains: sellers are taking a breath.  Not every day can be a sell-off.  To be sure, the gains weren’t inspired by data or any new fiscal developments. We can attempt to force the mid-day pop to fit a fiscal narrative based on a comment on the Senate’s time frame for a vote, but we could just as easily say it was position-squaring ahead of a holiday weekend with traders leaving at lunch time today and not coming back until the middle of next week.

Econ Data / Events

Jobless Claims

227k vs 230k f’cast, 229k prev

Continued Claims

1903k vs 1890k f’cast, 1867k prev

S&P Services PMI

52.3 vs 50.8 f’cast, 50.8 prev

S&P Manufacturing PMI

52.3 vs 50.1 f’cast, 50.2 prev

Market Movement Recap

09:25 AM modestly weaker after spending bill passage, but back to unchanged in MBS now.  10yr down 1.3bps at 4.588

12:19 PM Nice rebound, perhaps on news that spending bill could take all summer.  MBS up 6 ticks (.19) and 10yr down 6bps at 4.542

04:27 PM Heading out near best levels with 10yr down 6.3bps at 4.538 and MBS up nearly a quarter point.

The most significant development of the overnight session was the early morning passage of the spending bill in the House. This resulted in only a modest extension of losses in stocks/bonds, mostly because stocks/bonds (mostly bonds) have been pricing this in throughout the week. Yields actually managed to recover into positive territory before the 9:45am ET econ data, and haven’t changed much since then.  All in all, an exceptionally underwhelming level of volatility given the news and the fact that this is our only real morning of econ data this week.