Procedural limits on condo originations aimed at preventing issues like the Surfside building collapse have frustrated lenders, who will see if this helps.

The fireworks that traditionally accompany big bank CEOs’ appearances in Congress were absent Wednesday, but instead executives pushed their opposition to the Basel III capital rules and its impact on the economy.

The head of the short-selling firm Muddy Waters said he’s short Blackstone Mortgage Trust, saying the publicly traded real estate investment trust is exposed to a perfect storm of economic conditions hitting commercial real estate and may face a liquidity crisis.

Toll Brothers Inc. stock rose as the homebuilder’s executives pointed to “solid” demand in recent weeks as mortgage rates pulled back from two-decade highs.

Too few lenders are underwriting unsecured consumer debt, which could help borrowers pay down credit card balances with little risk to lenders.

Mortgage rates are hitting lower milestones like it’s their nine to five recently and today was just another day at the office.  The average lender was only modestly lower versus yesterday, but since yesterday was effectively a 4 month low, today therefore deserves the same recognition. In fact, today’s version is a bit more legitimate as we no longer need to make any excuses for the brief moments on August 6th-9th when the average was microscopically lower.  Today’s rate sheets are now clearly a bit better than those. If rates seem determined to improve, it’s because economic data has remained supportive of that effort.  Today’s ADP Employment was lower than expected.  While this wasn’t a huge deal for rates, it didn’t hurt.  15 minutes later, Q3 labor cost data came in 0.3% below forecasts, adding to the gains.  After the data, oil prices and foreign central bank comments helped maintain the supportive environment. These factors won’t always ensure the same reaction in rates, but at present, the bond market is receptive to any sign of a shift in the economy, inflation, and the official policy response. On that note, there’s a lot of anticipation for Friday’s big jobs report and the updated rate outlook from the Fed next Wednesday.  In short, markets are increasingly getting in position for the data and the Fed to confirm that the perceived shift in rate momentum is valid and sustainable.  

More Gains. Are Bonds Overbought?

The combination of friendly economic data, dovish comments from the Bank of Canada, and lower oil prices helped yields drift down to new 3-month lows this morning.  In less than a month and a half, that brings the size of the 10yr yield rally to nearly 90bps.  Is that too much, too soon?  The answer could depend on perspective.  It’s a big move in and of itself, but one could argue that bonds were brutally oversold heading into mid October.  One reassuring piece of evidence is the extent to which yields have remained calm and sideways on each of the past two afternoons after rallying to new multi month lows. Either way, there’s no debate about the data dependent nature of the movement.  With that in mind, Friday’s jobs report remains critically important.

Econ Data / Events

ADP Employment

103k vs 130k f’cast, 113k prev
ADP says more moderate hiring and wage growth in 2024

Q3 Labor Costs

-1.2 vs 0.9 f’cast, +3.2 prev

Market Movement Recap

08:32 AM Modestly weaker overnight but turning green after AM data.  10yr down 0.4bps at 4.159.  MBS still down 2 ticks (.06) but probably not for long.

01:15 PM Steady gains. Best levels of the day.  MBS up 5 ticks (.16) and 10yr down 5.2bps at 4.115.

03:42 PM Off the best levels, but still stronger on the day.  MBS up 3 ticks (0.09).  10yr down 4.6bps at 4.121

04:43 PM Late afternoon weakness shaken off.  10yr down 5.4 bps at 4.113, near the lows.  MBS up 6 ticks (.19).

Another day, another set of economic reports that offer no objections to the steady bond market rally of the past few weeks.  Yesterday’s heavy lifting came courtesy of JOLTS (job openings).  Today’s was more of a team effort with ADP employment missing the forecast at 8:15am and Labor Costs coming in well below the consensus at 8:30am. The Bank of Canada announcement and oil inventory data could be argued to be playing supportive roles. Bond yields dropped several bps after the data, but only in the longer end of the yield curve (10yr down 5bps, 2yr UP 2bps). This suggests the market doesn’t see the Fed getting carried away with too many rate cuts in 2024.

Some Bank of Canada (BOC) headlines

BOC: HIGHER RATES ARE CLEARLY RESTRAINING SPENDING, LABOR MARKET CONTINUES TO EASE
BOC WANTS TO SEE FURTHER, SUSTAINED EASING IN CORE INFLATION
BOC: GLOBAL FINANCIAL CONDITIONS HAVE EASED AND OIL PRICES ARE $10 LOWER PER BARREL THAN THE BANK HAD FORECAST IN OCTOBER.
BOC: Indicators Suggest Economy Is No Longer in Excess Demand
BOC: Economic Growth Has “Stalled”

Yesterday I was driving across Northern California to the coast (Gualala), and in Sacramento I asked the McDonald’s drive-through clerk (hey, only the best for me!) why the medium French fries were 30 cents more than the double cheeseburger ($4.29 versus $3.99). She immediately launched into an explanation of farming inequalities and Keynesian economics, and how aggregate demand does not necessarily equal the productive capacity of the economy. I shot back with, “Whoa, sister, where’s my extra catsup packet?” Okay, that exact exchange didn’t take place, but it did remind me of supply and demand, and mortgage rates, and there is an explanation of the current forces is in the capital markets section. There are a myriad of other things that CEO and owners are watching, many of which will be discussed today at 11AM PT during the Mortgage Matters podcast (register here) when Mark Jones, President of Union Home Mortgage and Chairman of the MBA, is the guest. (Today’s podcast can be found here, and this week’s is sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics, unite the people, systems, and stages of the mortgage process. Hear an interview with CoreLogic Chief Economist Selma Hepp on the latest Home Price Index and trends in housing markets across the nation.) Lender and Broker Products, and Services

Double-digit declines in many mortgage rates helped revive interest in refinancing last week and a subsequent increase in the Mortgage Bankers Association’s (MBA’s) Market Composite Index. The Index, a measure of application volume, rose 2.8 percent on a seasonally adjusted basis. Before adjustment, the Index was up 43 percent, due in large part to a rebound from Thanksgiving week. MBA said applications for refinancing were 14 percent higher than the previous week and 10 percent above the activity during the same week in 2022. The refinance share of applications reached 34.7 percent of total applications, up from 30.6 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index slipped by 0.3 percent from one week earlier but was up 35 percent on an unadjusted basis. It was 17 percent lower than the same week one year ago. [purchaseappschart] “Mortgage rates declined last week, with the 30-year fixed-rate mortgage falling to 7.17 percent – the lowest level since August 2023. Slower inflation and financial markets anticipating the potential end of the Fed’s hiking cycle are both behind the recent decline in rates,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Refinance applications saw the strongest week in two months and increased on a year-over-year basis for the second consecutive week for the first time since late 2021. The overall level of refinance applications is still very low, but recent increases could signal that 2023 was the low point in this cycle for refinance activity, consistent with our originations forecast. Purchase applications remained 17 percent lower than a year ago, held back by low inventory and still-challenging affordability conditions.”