Just yesterday, we were nodding in agreement and acceptance of the fact that rates were better served by cooling off a bit (read: “rising”) after improving at a pace that seemed too quick for the motivations earlier in the week. In other words, it was a bit of a pickle to explain why Tuesday and Wednesday’s news and data were worth a surge to 3-month lows. Now today, we’re right back in the same pickle, but everyone who’s cool knows that pickles are delicious. Today’s is no exception with the average lender easily moving down to new 3-month lows. As for motivations, today actually wasn’t quite as pickled as Wednesday. We had the week’s most anticipated economic report and the most anticipated Fed speech. ISM Manufacturing only came in a bit weaker than expected (good for rates), but perhaps more importantly, it didn’t come in higher than expected. Thus, the bond/rate market wasn’t forced to quickly change its strategy of adjusting for a new, lower rate outlook for 2024. Same story with Fed Chair Powell’s mid-day speech. Knowing what we know about Powell, it wasn’t too likely that he’d take a strong stand in one direction or the other (which is exactly right given the “data dependent” nature of the Fed’s rate considerations), but some saw a risk that he would intentionally try to nudge rates higher due to the speed with which they’ve recently fallen. Powell definitely didn’t convey any such agenda today and bonds/rates were invigorated as a result. Traders moved to defend against the possibility that next week’s data continues arguing for lower rates. We say “defend” because if the data is accordingly weak, the current level of rates is far too high.
Source: Mortgage News Daily
Another Surprisingly Eager Bond Rally Suggests Caution and Opportunity
Two days ago, the focus of the analysis was on the potentially puzzling level of strength in the bond market (i.e. gains seemed a bit overdone relative to motivations). In fact, we welcomed yesterday’s bump in yields as something that made more sense in the current context. The only caveat was that yesterday was “month-end” and we often see directional month-end volatility give way to a reversal on the first day of the new month. That was the case today, but at best, we could only say the new-month trading environment greased the skids. Directional inspiration was gleaned from ISM Manufacturing data as well as a “no whammies” speech from Fed Chair Powell. Any additional grease on the skids would be a byproduct of traders not wanting to be caught not owning bonds today in the event next week’s economic data comes in weaker than expected. If it does, it will officially be the best data-driven confirmation of the big picture rate reversal that we’ve been seeking for more than a year. On the other hand, caution is in order due to the obvious lead-off being taken. In other words, the market is obviously positioning for the scenario where data continues missing the mark, and is thus relatively poorly positioned for an upbeat data surprise. Such a surprise could cause quite a volatile little spike in rates.
Econ Data / Events
ISM Manufacturing
46.7 vs 47.6 f’cast, 46.7 prev
ISM Prices
49.9 vs 45.1 prev
(anything under 50 is disinflationary)
S&P Global Manufacturing PMI
49.4 vs 49.4 f’cast, 50 prev
Market Movement Recap
09:47 AM Almost perfectly flat overnight and into the domestic session. 10yr up 1.2bps at 4.34. MBS down 3 ticks (.09).
10:18 AM modest losses flip to gains after ISM data. 10yr down 2.3bps at 4.305. MBS up 2 ticks (.06).
12:00 PM Additional gains after Powell speech. 10yr down 7.7bps at 4.25 and MBS up a quarter point.
01:06 PM More time, more gains. 10yr down 10bps at 4.23. MBS up 3/8ths.
05:01 PM Best levels of the day at the close with MBS up more than half a point and 10yr yields down 13.1bps at 4.197.
Source: Mortgage News Daily
With it being the first trading day of a new month and a Friday, it’s hard to determine the extent to which traders planned to buy bonds today providing an absence of the proverbial whammies. At the very least we can say not only were there no whammies in either of today’s two key events, but both were arguably slightly supportive.
The volume response relative to the directional trading suggests the takeaway on Powell was more mixed (higher volume, but less of an initial rally). The gradual gains that follow speak to the “no whammies” trade as markets waited to see if Powell would say something bad for bonds in the Q&A portion.
Source: Mortgage News Daily
Yesterday, a clown held the door open for me. It was such a nice jester. On the flip side, it’s not nice being taken advantage of and lenders are feeling Thunderstruck about, as this Commentary has mentioned several times, credit costs being jacked (more below). On the inflation theme and a little more mainstream, for me and plenty of people who read this Commentary every day, is the egg price fixing that has been occurring. (Remember when prices were way up around Easter?) Although inflation has been slowing, we don’t need this stuff. And the price of the twelve gifts described in the classic song “The 12 Days of Christmas” is at a record high of $46,730, according to PNC’s 2023 Christmas Price Index. At the other end of the cost spectrum, how’d you like to live like Martha Stewart (for a night) for $11.23? Rent her place! (Today’s podcast can be found here, and this week’s is sponsored by MCT. MCT’s technology and know-how continues to revolutionize how mortgage assets are priced, locked, protected, valued, and exchanged — offering clients the tools to perform under any market condition.) Lender and Broker Products and Services Exciting news in the real estate appraisal world! Class Valuation has just strengthened its market presence through the strategic acquisition of Valuation Connect. In a game-changing move, Class Valuation is set to elevate its position as a market leader by joining forces with the dynamic Valuation Connect. This union of industry powerhouses signifies a commitment to innovation and excellence in real estate appraisal solutions. Class Valuation CEO John Fraas expresses enthusiasm, stating, “Combining forces is going to be a win-win for all stakeholders.” The collaboration promises operational efficiency, enhanced service offerings, and cutting-edge appraisal technology. Integrating seamlessly with Class Valuation’s culture, Valuation Connect brings a centralized retail presence and technology that aligns perfectly with the vision of both companies. This strategic acquisition reinforces Class Valuation’s commitment to providing efficient, intentional products and services to mortgage lenders with the combined entity offering expanded resources, enhanced technology, and a broader range of modernization products. Read the full announcement here.
Source: Mortgage News Daily
If you count the Friday after Thanksgiving as a business day, mortgage rates had fallen for 6 straight days as of yesterday afternoon. Moreover, they’d reached the lowest levels in 3 months and had put an impressive amount of distance between themselves and the highs seen just over a month ago. Ironically, yesterday’s analysis expressed some measure of bewilderment at just how much better rates were versus the previous day. Now today, we see that all good things–especially those that look a little TOO good–come to an end. This isn’t necessarily a bad thing. When rate rallies continue unabated, the certainty and swiftness of the eventual rebound only increase. By undergoing a moderate rebound in a measured, logical way, rates have made it easier for themselves to remain in the current range without excess volatility. That doesn’t mean volatility is out of the question, but it’s more likely to be seen in response to the big ticket economic data that typically inspires bigger swings in rates. We won’t get most of that big ticket data until next week, but there is a chance that tomorrow morning’s ISM Manufacturing index will spark a reaction if it’s much higher or lower than expected. As is always the case, there’s no way to know if the data will be good or bad for rates ahead of time. All we know is that the rate market is incredibly interested in the upcoming data as an indication of whether rates have officially turned a corner in the big picture. While that’s exciting (or scary), keep in mind that it would take several months of cohesive data to do the trick.
Source: Mortgage News Daily
The National Association of Realtors® (NAR) said its Pending Home Sale Index (PHSI) established a record low in October. The Index, a forward-looking indicator of contracts signed to purchase single-family homes, townhomes, condominiums, and cooperative apartments, dropped 1.5 percent to 71.4 in October, the lowest number since the index was originated in 2001 . The Index has now fallen 8.5 percent in the last year. [pendinghomesdata] Lawrence Yun, NAR’s chief economist said, “During October, mortgage rates were at their highest, and contract signings for existing homes were at their lowest in more than 20 years. Recent weeks’ successive declines in mortgage rates will help qualify more home buyers, but limited housing inventory is significantly preventing housing demand from fully being satisfied. Multiple offers, of course, yield only one winner, with the rest left to continue their search.” The only region in the nation to see improvement in October was the Northeast. The PHSI for that region rose 2.7 percent to 64.8. This was still a 6.5 percent year-over-year retraction. Contract signings were down 0.4 percent in the Midwest compared to September and declined 10.3 percent from the prior October. In the South , the PHSI was 85.6, a 1.9 percent and 7.1 percent decrease from the two earlier periods. The West’s index fell 6.0 percent 51.8 and was 10.8 percent below its level a year earlier.
Source: Mortgage News Daily
It would have been a lot to ask for bonds to continue rallying without any major justification after hitting 4.25% yesterday and after 50bp rally over the past 4 weeks. That tall order grew even taller after the AM econ data, Fed comments, and OPEC news. Each had a hand in pushing yields higher in the AM hours.
The 8:30am reaction is the least interesting of the 3. It looks more like a market that was holding out the possibility of weaker data and then simply didn’t get it. The Fed comments and OPEC headlines were the morning’s biggest deal. Interestingly enough, no one at the Fed is saying anything new, but some traders are surprised there hasn’t been a more detectable shift in tone (i.e. some are still
The nice thing about this particular sell-off is that it is wholly inconsequential in the bigger picture. In fact, it’s setting up to be classified as a modest token correction after a big rally. Bigger revelations and market movement are more of a “next week” kind of thing.
Source: Mortgage News Daily
MSR Sales, Subservicing, Margin Mgt., PPE, HELOC, Pre-Approval Tools, Don't Ignore HMDA Requirements
Home schooling is the goodest thing I ever did for my two kids. Hopefully, they both learned that an inverted yield curve doesn’t automatically create, or lead to, a recession. As we approach 2024, short term rates have been higher than long term rates since 2022, and when you think of the last 10 recessions eight of the last 10 were preceded by an inverted yield curve. But now the “experts” are saying that this yield curve inversion is due to artificial reasons, namely the U.S. Federal Reserve’s actions that shifted rates, rather than more natural factors. Time will tell, and no one can eliminate business cycles, so we may have a recession (and with it, lower rates) at some point. But for now, “The U.S. economy is becoming increasingly recession resistant. State, local, and federal government spending as a percentage of GDP has risen from 29 percent in 1962 to 35 percent today. Healthcare spending has risen from 5 percent of GDP in 1962 to 18 percent in 2021. Collectively they have risen from 34 percent of GDP to 53 percent and most critically, both sectors are not particularly interest-rate sensitive.” So spoketh Dr. Elliot Eisenberg. (Today’s podcast can be found here, and this week’s is sponsored by MCT. MCT’s technology and know-how continues to revolutionize how mortgage assets are priced, locked, protected, valued, and exchanged, offering clients the tools to thrive under any market condition. Hear an interview with Lender Price’s Dustin McClelland on how lenders can upgrade or enhance their pricing technology.)
Source: Mortgage News Daily
There were no major economic reports or news headlines in play today. Movement in the bond market (which underlies mortgage rate changes) was orderly and moderate. There were no major changes in high level lending costs or any other costs that would impact mortgage rates. Despite all that, rates improved appreciably compared to recent days, ultimately hitting the best levels in almost exactly 3 months. For some context, those levels from 3 months ago were very close to multi-decade highs at the time. After that, rates simply added insult to injury through the end of October. November, on the other hand, has moved reasonably quickly to push top tier 30yr fixed rates back into the high 6% range. Officially, we’re not there yet. The average lender is still in the low 7% range, but that is a huge improvement from several weeks ago. If tomorrow were to turn out as good as today, the index would break below 7%. Whether or not tomorrow is as good as today is completely unknowable. Actually, perhaps it’s somewhat knowable. We can say that, all other things being equal, it is tremendously uncommon for two successive days to be as good as today. It does happen, but typically only with obvious motivations. The bigger questions, risks, and opportunities remain in the week ahead when we’ll have multiple opportunities to see obvious motivations among several highly consequential economic reports.
Source: Mortgage News Daily
Shifting Trends, Shifting Strategies?
Another day of modest to moderate gains, but this time without the same sort of obvious cause and effect relationship seen with yesterday’s Waller comments. That’s not to say that Fed comments weren’t helpful–simply that they put in more of a team effort as opposed to an individual standout performance. The gains mean that a sideways trend is now becoming a downtrend in rates. That is a welcome development, but should it change anything about how you interact with the rate market? The answer can depend on how strong that relationship is currently. Either way, it’s a short-term consideration. Next week’s data has the potential to influence longer term considerations.
Econ Data / Events
GDP, 1st revision, Q3
5.2 vs 5.0 initial
GDP Final Sales
3.7 vs 3.5 initial
Market Movement Recap
09:02 AM Slightly stronger overnight with a micro bounce on the GDP revision. 10yr still down 2bps at 4.305. MBS up 2 ticks (.06).
10:31 AM Solid gains into the 10am hour but giving some up now. 10yr down 3.5bps at 4.29 and MBS up an eighth.
02:48 PM Broadly sideways at best levels. MBS up 5 ticks (.16). 10yr down 4.3bps at 4.278.
Source: Mortgage News Daily
