Ultimately a Very Drama-Free Day; Back to Watching Data

Ultimately a Very Drama-Free Day; Back to Watching Data

Tuesday helped buck the recent trend of frustratingly counterintuitive selling sprees in the bond market.  The amount of blame assigned to politics or to the arcane practices dictating monthly positioning in bonds can be debated, but there’s less urgency on that front with today bringing moderate improvement.  Fed Chair Powell’s appearance at SINTRA was a non-event, but perhaps in a “no whammies” sort of way.  Bonds gradually improved during his time on stage but lost some ground after the JOLTS data (as it should be, considering the higher than expected reading).  Buyers held firm, however, and we hit the close with gains intact.  To some, that’s proof positive that there’s no glacial repricing of risk following the presidential debate.  To others, it’s a suggestion that it didn’t matter as much as it may have seemed.  Either way, we have big ticket data to look forward to in the next two business days.

Econ Data / Events

Job Openings (lower = better for rates)

8.14m vs 7.91m f’cast, 7.919m prev

Job “Quits” (lower = better for rates)

3.459m vs 3.452m prev

Market Movement Recap

09:46 AM Moderately stronger overnight with additional gains in early trading.  MBS up more than an eighth.  10yr down 4bps at 4.423

11:00 AM Some weakness after JOLTS, but improving again now.  MBS up 7 ticks (.22) and 10yr down 3.1bps at 4.433

02:53 PM Modest additional improvement with 10yr down 2.9bps at 4.435 and MBS up 6 ticks (.19)

04:54 PM Closing at decent levels, right in line with the previous update.  
Source: Mortgage News Daily

Bond Selling Spree Thinking About Taking a Day Off

It’s been an interesting and frustrating couple of days for the bond market with yields spiking for reasons that leave many bond watchers guessing.  A market participant who’s heavily involved in month-end trading/positioning may be more inclined to see the sell-off through that lens.  A market participant who is more focused on politics would favor the political explanation (i.e. increased odds of a GOP sweep after the debate).
Either way, the weakness was not conveniently tied to a single moment and headline in the manner typical of big ticket economic data or Fed speeches.  Today’s session begins to heal those wounds to some extent. Fed Chair Powell spoke at the SINTRA conference, but didn’t have anything new or remarkable to say.  Bonds seemed to appreciated the absence of hawkish comments as they nursed a gentle overnight rally. JOLTS data was close to consensus and kept yields in the AM range despite initial selling in the day’s heaviest volume.
Source: Mortgage News Daily

Fair Lending Compliance, HELOC Products; Training and Events; FICO News

Cracker Jacks, Quaker Oats, Ferris Wheels, and 1893 Chicago have something in common. World’s Fairs, and World’s Expos, have pretty much gone away due to financial issues. A lot has happened since then, financially, and otherwise. Equifax was founded in 1899. The modern credit card, able to be used at various merchants, was developed in the 1950s, when many of today’s loan officers were entering the business. (Ok, just kidding.) FICO (legal name: Fair Isaac Corporation) began in 1956. FICO’s latest news came out yesterday with Encompass Lending Group and Equity Resources, Inc. being the latest to adopt FICO® Score 10 T. Meanwhile, the Mortgage Bankers Association and others have stated that credit-related price hikes have cost lenders & consumers hundreds of millions of dollars. FICO’s executives are well paid. FICO’s stock, at around $1,500 per share, has a price earnings ratio at around 77 (versus the S&P 500 average of around 25) although the only product with any great revenue growth is mortgage credit scores. (Other lines are flat or mediocre.) Observers suggest that Fair Isaac may only have two choices going forward: keep raising mortgage credit score prices even higher or watch its stock price plunge. Some give it near-monopoly status; American Economic Liberties Project’s Matt Stoller uses the word “cartel” when it comes to Experian, TransUnion, Equifax, and FICO. (Today’s podcast is found here and this week’s is sponsored by Bundle, the attorney-prepared legal documents company that is dedicated to the real estate, mortgage, and title industries. Fuel your operations and execution of documents from deeds to subordinations to assignments, and everything you need for any order, in one bundled price; receive 20 percent off using the code “Chrisman” at checkout. Hear an Interview with FirstClose’s Tedd Smith on a new national consumer survey that explored homeowners’ level of awareness of home equity and how it could be used to pay down higher interest credit card debt.)
Source: Mortgage News Daily

Changing The Narrative to Fit The Market Movement

Changing The Narrative to Fit The Market Movement

Often, if not most of the time, one can observe the core ingredients of any given trading day and reasonably predict the nature of the bond market’s reaction.  At the very least, there’s a certain basic level of causality that tends to play by the rules more often than not.  For instance, if a report like ISM Manufacturing comes in weaker across the board, it’s reasonable to expect bond yields to fall, all other things being equal.  To be fair, that actually happened today, but only for about 70 seconds before yields began selling off again, ultimately hitting the highest levels in more than a month.  Such a counterintuitive move sends analysts scurrying for narratives to fit the market movement.  In this case, all we have are the now familiar month-end/new-month trading patterns and “politics.” The latter is a can of worms–not because of the charged nature of the topic, but because of all the ifs, thens, assumptions, and yeah buts required to to make the narrative fit. 

Econ Data / Events

ISM Manufacturing PMI

48.5 vs 49.1 f’cast, 48.7 prev

Market Movement Recap

09:06 AM Just barely weaker overnight with additional selling at 8:20am CME open.  MBS down an eighth and 10yr up 4.9bps at 4.446.

10:51 AM Additional weakness after ISM data, but not necessarily because of it.  MBS down a quarter point and 10yr up 8bps at 4.477

02:28 PM weakest levels now with MBS down just over a quarter point on the day and 10yr yields up 9bps at 4.487
Source: Mortgage News Daily

Mortgage Rates Near Highest Levels in More Than a Month

Mortgage rates continued their frustrating and somewhat perplexing move higher today, thus bringing the average lender close to the highest levels since the end of May.  Rising rates are always frustrating for those the housing/mortgage markets and prospective borrowers, but an ebb and flow is a way of life.  In other words, it’s perfectly normal to see good and bad days for rates. Less normal is the occasional emergence of counterintuitive rate movement.  In other words, we are usually able to tie any given drop or surge in rates to one or more root causes that have had similar impacts in the past.   This time around, however, the economic data has been suggesting DOWNWARD pressure on rates over the past two days.  That’s notable for two reasons: economic data has been a reliable source of guidance and, more importantly, rates have experienced anything but downward pressure over the past two days! There are a few ways to account for the paradox, but at this point, most conversations include some speculation about the political impact on rates after last week’s presidential debate.  Connecting the dots from those conclusions to the market movement is a rather complex task and it relies on several assumptions that can’t be predicted with a high degree of certainty.  As such, we’ll dig deeper in the event the narrative continues causing problems for rates.  For now, just be aware that it may be a source of counterintuitive pressure, but one that should still be trumped by the major upcoming economic reports.
Source: Mortgage News Daily

AVM, Audit, Compliance, Referral Network Tools; Conventional Conforming Changes

Do you know anyone in a “Situationship?” You know, a romantic or sexual relationship that is not considered to be formal or established? People in many varying degrees of relationships buy homes together, and using multiple incomes has become arguably more important in recent years. The math is not hard. The “average” person has a student loan, or a car loan, or credit card debt, or all three. Throw in interest rates around 7 percent, homeowner’s insurance of possibly thousands of dollars, utilities, property taxes, utilities, maintenance, mortgage insurance… you get the picture. Home affordability has deteriorated for several months in a row due to all of those reasons, not the least of which is mortgage rates, sidelining many prospective buyers from entering the housing market. Even the Fed noted it in its Beige Book, saying that “tight credit standards and high interest rates continued to constrain lending growth. Housing demand rose modestly, and single-family construction increased, though there were reports of rising rates impacting sales activity.” (Today’s podcast is found here and this week’s is sponsored by Bundle, the attorney-prepared legal documents company that is dedicated to the real estate, mortgage, and title industries. Fuel your operations and execution of documents from deeds to subordinations to assignments, and everything you need for any order, in one bundled price; receive 20 percent off using the code “Chrisman” at checkout. Hear an interview with Bundle’s Courtney and Frank Dec on attorney prepared documents germane to the mortgage industry.)
Source: Mortgage News Daily

Yet Another Counterintuitive Sell-Off After Friendly Data

Friday’s trading session was marked by a surprisingly weak reaction to economic data that should have helped bonds.  In fact, it did at first, but things deteriorated as the day progressed.  We were left to consider some combination of politics and month/quarter-end trading motivations.  Now at the start of the new week/month/quarter, the same theme is in play.  Weak ISM data should have helped bonds, but we’re instead moving to the weakest levels in several weeks.  This time around, it’s harder to place all the blame on the calendar-based tradeflows.  In other words, bonds are getting nervous about a GOP sweep because whether it’s red or blue, a one party sweep has bad implications for Treasury supply.
Source: Mortgage News Daily

What to Make of Week's Weakest Levels After Solid PCE Data

What to Make of Week’s Weakest Levels After Solid PCE Data

Things looked good for the bond market earlier this morning.  While yields were still quite a bit higher than those seen earlier in the week, there was an immediate, positive response to the on-target PCE data.  The gains didn’t last long with sellers running the table mostly between 10am and 11am ET.  While some of the move could be due to traders moving to the sidelines ahead of near-term potential political developments, month/quarter-end positioning likely had a much bigger impact.  Bonds ended the week at their weakest levels, but this pull-back doesn’t inform next week’s trading in the slightest.  That honor goes to the active slate of bigger ticket economic data.

Econ Data / Events

Core M/M PCE

0.1 vs 0.1 f’cast
last month revised to 0.3 from 0.2

Core Y/Y PCE

2.6 vs 2.6 f’cast

Market Movement Recap

08:39 AM slightly weaker overnight and slightly stronger after data.  MBS up 6 ticks (.19) and 10yr down 2bps at 4.267

11:08 AM Tanking now.  10yr up 5.3bps at 4.34.  MBS down an eighth  on the day and a quarter point from rate sheets.

03:04 PM Still near weakest levels.  10yr up 6bps at 4.346 and MBS down 6 ticks (.19).
Source: Mortgage News Daily

Month/Quarter-End Trading Causing Lots of Volatility

This morning’s most notable scheduled event and biggest potential market mover was the release of May’s PCE price index, the Fed’s favorite inflation metric. Indeed the biggest volume spike and most directional movement of the day followed that data faithfully, helping yields move to the lowest levels of the past 3 days.  But things changed a short while later with a reasonably big sell-off to the highest yields of the week, all without any overt justification in terms of data or new news.  Combine it with the fact that Treasury performance is vastly different across the yield curve and this is a classic symptom of month/quarter-end trading.
To visualize the yield curve movement mentioned above, consider a chart of10yr and 2yr yields with equal y axes. Note the 10yr spiking much quicker than 2s during this morning’s sell-off.

Some smart people are considering the possibility that bonds are reacting to the presidential debate and that the improved odds of a Trump victory somehow precipitated this selling.  In our view, that’s hard to justify considering the random mid-morning timing despite an absence of similar trading earlier in the day.  It’s not as if traders changed their minds about the debate implications during this time.  On the other hand, it lines up quite well with past examples of month/quarter end trading on Fridays.
What does this mean for the future?  Nothing.  It’s just an explanation of this morning’s otherwise perplexing volatility.
Source: Mortgage News Daily

Website Compliance, Warehouse, Fee Collection Tools; Investor and Lender News

“They” say that as you age, life is like a toilet paper roll: the closer you get to the end, the faster it goes. Dang. But… 2024 almost half over? What the heck? Certainly, it doesn’t seem like all years are equal, that’s for sure. Not all home equity loan uses are created equal either, but given the amount of equity out there it is easy to see why lenders and investors are tripping over themselves in offering the product. Some uses such as paying for common-sense home renovations not only make a home more livable, but also can increase resale value. Some uses, however, like using home equity to subsidize an extravagant and unaffordable lifestyle, are more likely to backfire. The states where the largest share of homeowners considered tapping home equity for home improvements were Mississippi (48 percent), Maine (46 percent), and West Virginia (44 percent). States where the largest share of homeowners considered tapping home equity for debt consolidation were Wyoming (44 percent), Idaho (43 percent), and South Dakota (41 percent). Today’s podcast is found here and this week’s is sponsored by Candor. Candor’s authentic Expert System AI has powered more than 2 million flawless, hands off underwrites. Every credit risk decision Candor makes is backed by a warranty, eliminating repurchase worries. Hear an interview with Fairway Independent’s Tyler Osby on how originators can be heroes to realtors by adding value through consistent communication methods and repeatable processes.
Source: Mortgage News Daily