Bonds Leading Off in a Friendly Direction

Bonds Leading Off in a Friendly Direction

With ISM Manufacturing, Friday brought the only other reasonably important economic report of the week after Thursday’s PCE data, and it did not disappoint.  Well, actually, it did disappoint anyone hoping to see strength and resilience in the sector which is why it did not disappoint those hoping to see lower rates.  Not only did the headline dip well into contractionary territory, but the employment gauge was the 2nd lowest since breaking out of the covid lockdown period in mid 2020.  Timing matters with the big jobs report looming next Friday.  Prices also decelerated slightly.  With that, bonds surged to the best levels in more than two weeks, effectively taking a lead-off before confirming a friendly range breakout.  Caveat: that confirmation requires next week’s data to avoid crushing expectations.

Econ Data / Events

ISM Manufacturing

47.8 vs 49.5 f’cast, 49.1 prev

ISM Prices

52.5 vs 53 f’cast, 52.9 prev

Consumer Sentiment

76.9 vs 79.6 f’cast, 79 prev

Inflation expectations

1y up 0.1
5y unchanged

Market Movement Recap

10:24 AM slightly weaker in the early AM, but rallying nicely after 10am data.  10yr down 5.5bps at 4.197.  MBS up 5 ticks (.16).

12:38 PM Rally accelerated into 11am and is holding gains.  10yr down 4.7bps at 4.197.  MBS up 5 ticks (.16). 

04:42 PM Going out at the best levels of the day.  MBS up 10 ticks (.31).  10yr down 7.2bps at 4.182.
Source: Mortgage News Daily

Pending Home Sales Still Bouncing Along The Bottom

Sometimes you’ll see coverage of economic data that conforms to certain template with a predictable details and word counts.  Rarely, the word count will reflect the pace of change in the underlying data series.  That’s what you’re dealing with here. Existing home sales have been depressed since late 2022 and bouncing along the bottom ever since. Pending Home Sales is just another way to view the same problem.  Instead of closed transactions, it measures contract signings, thus providing a sort of sneak peak and next month’s Existing Home Sales potential.  With that in mind, it wouldn’t be a surprise to see Existing Sales slip back down after the monthly increase reported last week.  Here’s why: For those who are uncomfortable without a higher word count, here are a few regional bullet points showing the month over month and year over year change (%):
Northeast  + 0.8% (down 5.5% annually)
Midwest     – 7.6%  (down 11.6% annually)
South        – 7.3%  (down 9.0% annually)
West          +0.5%  (down 7.0% annually)
Source: Mortgage News Daily

Mortgage Rates Start Slightly Higher, but Finish Lower

The average lender was offering slightly higher rates this morning when compared to yesterdays latest levels, but things began to change after 10am ET.  That’s when today’s economic data caused the bond market to erase its day over day losses and ultimately rally to the best levels in more than two weeks. That’s good news for mortgage rates because mortgage rates are primarily driven by trading levels in the bond market.  The catch is that mortgage lenders don’t like to change rates once they’re set for the day unless bonds move enough to force their hands.  We saw just enough movement for most lenders to amend their initial offerings, thus bringing the average slightly below yesterday’s.
Source: Mortgage News Daily

Surprisingly Strong Reaction to Weak ISM Data

We haven’t talked enough about ISM Manufacturing this week because Thursday’s PCE data was the first report in more than 2 weeks that mattered.  Thus, the focus was on what came first as opposed to what has a track record of moving markets.  It didn’t help that ISM Manufacturing was separated from its usual top tier companions (all scheduled for next week).  Nonetheless, we now have a fresh reminder not to sleep on ISM Manufacturing!  The 47.8 vs 49.5 result has been enough for a decent rally to the best levels in more than 2 weeks.

Why the question mark?  This is only one day spent beyond the walls of our recent holding area.  It’s not over either.  The range breakout not only needs technical confirmation, but also fundamental confirmation from weaker econ data next week.  If ISM services were to tell a different story, markets would likely pay much more attention to that. 
On that note, how correlated are ISM services and manufacturing?  The question came up on MBS Live this morning and it led to the following charts.  In the bigger picture, the two are well correlated because both speak to general economic momentum. 

In the shorter term, the two are surprisingly divergent, however, thus suggesting that next week’s ISM Services data is anyone’s guess.
Source: Mortgage News Daily

TPO, Warehouse, Appraisal Mgt., Homeowner Engagement Tools; Credit Changes

As I watch it snow here in the Sierra, hey, if you’re going to watch one video this week, watch this 15-second classic (with sound) on how our banking system works. You’ll watch it at least twice, and let your kids figure it out. Since its all-time high of 30,456 in 1921, the bank population in the United States had declined to only 4,377 at the end of 2020, a decline of about 86 percent. Thousands of residential lenders hope they’re not involved in the same trend. I mention this because, speaking of numerical trends, the United States is producing more oil than any country has ever produced in the history of the world: 13 million barrels per day. It’s been economically punishing for the countries in OPEC+, which has seen its global market share drop to a new low of 48 percent. This is an interesting issue when it comes to inflation, which helps drive mortgage rates, and will be a very interesting issue in the next eight months when it is expected that two octogenarians will be vying for the top job. (Found here, this week’s podcast is brought to you 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 Nerdwallet’s Kate Wood on housing market supply and advice for potential homebuyers.) Lender and Broker Services, Products, and Software
Source: Mortgage News Daily

It Took a Village (Of Econ Data)

It Took a Village (Of Econ Data)

Bonds began the day in weaker territory but rallied after the 8:30am econ data.  This wasn’t exclusively a function of Core PCE hitting its forecast, but also drew strength from the higher continued claims number.  Just over an hour later, Chicago PMI came in noticeably weaker and added to the rally.  Gains slowly evaporated throughout the day in a linear trend.  While this left a microscopic improvement on the day it did nothing to push rates/yields out of their exceptionally narrow, prevailing trend.

Econ Data / Events

Jobless Claims

215k vs 210k f’cast, 202k prev

Continued Claims

1905k vs 1874k f’cast, 1860k prev

Core PCE m/m

0.4 vs 0.4 f’cast, 0.2 prev

Core PCE y/y

2.8 vs 2.8 f’cast, 2.9 prev

Chicago PMI

44 vs 48 f’cast, 46 prev

Market Movement Recap

08:54 AM Moderately weaker overnight, but erasing losses after data. 10yr nearly unchanged at 4.266.  MBS down only 1 tick (0.03).

09:52 AM Additional gains after Chicago PMI.  10yr down 1.8bps at 4.246.  MBS up 2 ticks (.06).

01:27 PM Off the best levels, but still stronger.  MBS up 3 ticks (.09) and 10yr down 1.2bps at 4.252.

03:07 PM some weakness heading into 3pm close (month-end).  Still barely positive with MBS up 1 tick (.03) and 10yr down half a bp at 4.259.

04:48 PM Briefly weaker at 4pm, but recovering back in line with the levels from the previous update.
Source: Mortgage News Daily

Lowest Mortgage Rates This Week After Key Inflation Data

In the bigger picture, mortgage rates would still be best described as “trending gently higher,” but in the shorter term, today was a victory.  The average lender moved from quoting conventional 30yr fixed rates near 3 month highs yesterday to the lowest levels of the week today.  The disclaimer is that this says more about the narrowness of the recent range than the ground covered. Another disclaimer is that you may well encounter mortgage rate headlines that say something completely different today.  This would almost certainly be due to Freddie Mac’s weekly survey number rising to the highest levels in more than 2 months.  Freddie’s survey is an average of the 5 days ending yesterday, nor does it account for points or a few other idiosyncrasies that can cause it to deviate from the reality in the trenches.   That reality is a conventional 30yr fixed rate that remains in the low 7% range for top tier scenarios.  If someone were to pay discount points or receive a relatively more aggressive quote, the high 6% range isn’t out of the question.  It’s just not “average.”  Today’s improvement was ostensibly driven by the bond market’s reaction to hotly anticipated inflation data.  There is indeed a case to be made that the as-expected reading on PCE inflation helped rates recover today, but other economic data was also helpful (jobless claims and Chicago PMI). Ultimately, today’s data is not what the market is truly waiting for.  The most important reports hit next week, culminating with Friday’s big jobs report.  The following week’s Consumer Price Index (CPI) is at least as important.  More than anything, those two reports will shape the dialogue in financial markets and the Fed meeting that takes place the week after CPI.
Source: Mortgage News Daily

TBA Pricing, Delegated Correspondent, Servicing Products; STRATMOR and Comp

Welcome to February 29; The 366th day is added to keep the calendar year synchronized with the astronomical year or seasonal year. What do astronomers know that we don’t? In general, what do “they” know that we don’t? Recall when Wells Fargo left correspondent, and other correspondent investors wondered the same thing. Now Rocket Companies will shut down Rocket Pro Originate in June, a mortgage origination platform for real estate agents and other financial pros. What does Rocket know? (More below). This biz is always changing, and this week I spent some time with Alanna McCargo, President of Ginnie Mae (without Ginnie Mae execution, FHA & VA programs would not be able to scale), and Ginnie is definitely trying to stay ahead of the curve which in turns helps first-time home buyers. (Found here after 8:30AM ET, this week’s podcast is brought to you 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 nCino’s Tyler Prows on digital transformation and how mortgage technology impacts the way loan officers and origination teams work.) Lender and Broker Services, Products, and Software Introducing the future of servicing: Dara by Sagent. Sagent has officially announced the industry’s first-ever mortgage software platform that unifies all data and user experiences for servicers and homeowners across the entire servicing lifecycle. Dara powers every detail of every mortgage for servicers across six primary areas: Core, Consumer, Default, Data, Movement, AI. This is mortgage servicing done right all in one root system, proactively preventing servicer errors, enabling anytime auditability, and drastically simplifying the mortgage servicing tech stack for the first time in decades — and it’s finally here 🤗. Read the full announcement here.
Source: Mortgage News Daily

Decent Reaction to Econ Data, and Not Just PCE

Today’s most hotly anticipated data was undoubtedly PCE inflation for January.  In fact, this is the report that became the subject of our focus and anticipation immediately following the last CPI on Feb 13.  That said, it only deserved focus because it was the best stop-gap data option between CPI and the next NFP on March 8th.  Today, it is proving its merit… maybe.  It’s actually hard to assign it too much credit for leading a reversal of overnight weakness because a big jump in continued jobless claims (highest since a spike in November that looked like an outlier at the time) arguably deserves some credit.  We even had a noticeable reaction to Chicago PMI later in the morning.  

One reason for giving Jobless Claims closer consideration is that today’s PCE data ran 10-30 seconds late depending on traders’ preferred delivery platform.  That allowed us to see the Claims data having an impact in a vacuum during that time, and a majority of the initial gains were already in by the time we saw PCE come through.  The additional drop in yields on the Chicago PMI data is possible evidence that the market is hungry for economically downbeat data.  It’s a bit more pronounced than we’re used to seeing for this report, and it would be a surprise to see as much selling if today’s number had beaten the forecast by as much as it missed.
Source: Mortgage News Daily

Small Scale Volatility But Very Sideways Overall

Small Scale Volatility But Very Sideways Overall

There were a few instances of volatility in the bond market today with several of the larger moves lining up with larger doses of volume.  In a “data dependent” world, it’s odd to consider that none of the notable moves had anything to do with economic data.  Instead, it was a surge in corporate bond issuance around 9am causing some selling and the 3pm close causing some buying.  And EVEN THEN, those events added up to a pittance of activity and drama.  Bonds managed to clock modest gains, but that only served to solidify the sideways trend that’s been in place since the Feb 13 CPI data.

Econ Data / Events

Q4 GDP (revision)

3.2 vs 3.3 f’cast

GDP PCE Price Index

2.1 vs 2.0 f’cast

Wholesale Inventories

-09.1 vs 0.1 f’cast, 0.4 prev

Market Movement Recap

08:58 AM Modestly stronger overnight. No reaction to data.  Giving up some gains now.  10yr still down almost 1bp at 4.295.  MBS up 2 ticks (.06).

11:42 AM Little changed from previous update after some initial volatility.  10yr down 1.2bps at 4.291.  MBS up 3 ticks (.09).

03:27 PM Stronger during the 3pm CME close (month-end).  10yr down 3.5bps at 4.268.  MBS up a quarter point in 5.5 coupons and an eighth in 6.0 coupons.
Source: Mortgage News Daily