Mortgage lenders generally try to avoid setting rates more than once per day, but they will make changes if the underlying bond market is moving enough.  Mortgage Backed Securities (MBS) are the bonds that directly dictate mortgage rate movement.  When they’re stronger/higher, it implies downward pressure on rates and vice versa. MBS started the day in weaker territory, which is why the average lender started the day by offering just slightly higher rates compared to yesterday’s latest levels.  But MBS improved with the rest of the bond market after the morning’s economic data was released. When MBS improved enough, many lenders revised their rates slightly lower than yesterday’s latest levels. Technically, the average lender is at the lowest levels in over a month, but there’s been very little change in the average since last Friday.  The following chart of MBS may help explain why.  Keep in mind that the higher the blue line is, the better it is for rates.  The red line shows the central tendency of the past few days of movement.  Bottom line, despite the ups and downs, MBS have been reasonably flat this week.

No Whammies From Powell as Rates Rally on ISM Data

Bonds came away from this morning’s economic data with a tailwind that helped turn losses into gains.  The ISM Services PMI was the biggest contributor.  In addition to headline PMI being much weaker than expected, the employment index was also lower than last month, and the price index was unchanged. The only thing bonds had left to fear on the day was Powell’s afternoon Q&A, but there were no surprises and, thus, no reaction in rates.  Lenders were free to reprice for the better if they hadn’t done so before Powell.  Despite the gains, trading levels continue hitting the same resistance marked by 10yr Treasury yields just under 4.20%.

Econ Data / Events

ADP Employment

146k vs 150k f’cast, 233k prev

S&P Services PMI

56.1 vs 57.0 f’cast, 55.0 prev

ISM Services

52.1  vs 55.5 f’cast, 56.0 prev

Market Movement Recap

08:23 AM Moderately weaker overnight and little-changed after ADP data. MBS down 6 ticks (.19) and 10yr up 5bps at 4.273

10:03 AM MBS up to “unchanged” after the ISM data.  10yr up 1.6bps at 4.24.  MBS outperforming due to strength in the short end of the yield curve (i.e. 2yr yields are down 0.8bps on the day).

12:12 PM stronger still… MBS up an eighth and 10yr down 2.8bps at 4.196

03:02 PM Steady near best levels.  MBS up 5 ticks (.16) and 10yr down 4.1bps at 4.183

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The bond market is the primary driver of mortgage rate movement and normally, “weakness” equates to higher rates.  Bonds are slightly weaker today compared to yesterday afternoon, but mortgage rates nonetheless managed to move lower.  What gives? Timing is partly to blame.  Bonds may be weaker than yesterday afternoon, but they’re still stronger than yesterday morning, when most lenders publish their rates for the day.  After that initial rate offering, it takes a fair amount of bond market volatility before the average mortgage lender will make changes to mortgage rates.  Several lenders offered improvements yesterday afternoon in response to bond market improvements.  In those cases, their rates were fairly similar today.  Ironically, just as yesterday’s volatility resulted in improvements for rates, today’s volatility is doing the opposite with several lenders “repricing” to slightly higher levels. The net effect is an average rate that is just a hair below yesterday’s, and also the lowest in just over a month.