There’s probably not going to be any way around it. However volatile rates may have been in the past 2 weeks, they’re at risk of much larger swings in the 2 weeks ahead. I’m intentionally avoiding commenting on the first few weeks of February because it’s not a given that the upcoming movement will be any bigger than that. From February 2nd through the 15th, the average 30yr fixed rate increased by a whopping 0.75%. Since then, we’ve drifted up and over 7% as the market waits on several highly consequential economic reports. That brings us to the rationale behind calls for higher volatility. The big jobs report coming up on Friday and the Consumer Price Index (CPI) on deck next week are the two most relevant economic reports month in and month out right now. This week’s comments from Fed Chair Powell reiterate the possibility that the Fed could increase the pace of its rate hikes if the data comes in hot enough. As always, financial markets will adjust for that possibility immediately following the release of the data. In other words, traders won’t wait for the Fed to actually hike by a larger amount before selling bonds. When traders sell bonds, rates rise, all other things being equal. That means mortgage rates would quickly move to even higher levels if Friday’s jobs report is much stronger than expected. Conversely, if the report is weaker, rates would likely recover by a larger amount than any of their recent winning days. The movement seen so far this week is more of a placeholder by contrast. Today happened to be bad, with the average lender drifting slightly higher into the low 7% range for top tier 30yr fixed scenarios. [thirtyyearmortgagerates] [volatilityindex] Source: Mortgage News Daily
Slightly Weaker, But It Could Have Been Worse
Bonds are heading out the door in only moderately weaker territory. One of the day’s most notable developments was the fact that stronger trading levels prevailed in the AM hours despite stronger econ data, looming supply, and another day of Fed Chair Powell testimony. It was really only after the poorly-received 10yr Treasury auction that things turned south for longer-term bonds. Even then, 10yr yields rising only 1.1bps feels like a victory given the bearish inputs digested by the market. Unfortunately, this silver lining simply shows the capacity for resilience. Whether or not the resilience materializes depends almost entirely on Friday’s jobs report and next week’s CPI data.
Econ Data / Events
ADP Employment
242k vs 200k f’cast, 119k prev
Market Movement Recap
09:57 AM Roughly unchanged overnight, then stronger at the 8:20am CME open and 9:30am NYSE open. MBS up almost a quarter point. 10yr down 6bps at 3.91%
10:35 AM 2-way trading after JOLTS and initial Powell comments. Briefly weaker, but bouncing back. MBS up 5 ticks (.16) and 10yr down 6bps at 3.91% still.
11:32 AM MBS back to weakest levels, roughly unchanged on the day, but down a quarter point from highs. No standout motivations. Just moderate volatility within the recent range.
01:05 PM More weakness after 10yr Treasury auction. 10yr up 1.1bps at 3.98. MBS down 6 ticks (.19).
04:23 PM Sideways at weaker levels all afternoon. MBS down 6 ticks (.19) and 10yr yields up 1.3bps at 3.983.
Source: Mortgage News Daily
The world “resilient” has frequently been repeated in the commentary over the past two weeks, and today is already shaping up to be worth adding to the list. Despite higher ADP employment, higher job openings (via JOLTS data), anxiety over Powell’s 2nd day of testimony, and a looming 10yr Treasury auction, bonds have remained in positive territory in early trading. It would be hard to label this as anything other than resilient. That said, resilience speaks more to an absence of additional weakness than to a significant counterattack. The latter would require downbeat data (particularly NFP and CPI).
Source: Mortgage News Daily
Last week my son asked if I had seen the dog bowl. I replied, “I didn’t know he could!” The weather here in Palm Springs, California is much different than that of Anchorage, and yesterday’s Commentary’s mention of the fabled Iditarod prompted Fairway Independent’s Susan Hawkins to send, “I was there when I lived in Anchorage! Here are some photos.” Looks cold, which is to be expected. What is not expected is when a lender or vendor makes headlines. Huh? CoreLogic in the headlines again? Yup. What is also in the headlines is the move in interest rates: The bond market price selloff came after Fed Chairman Jerome Powell warned in his testimony that the “ultimate level of interest rates is likely to be higher than previously anticipated.” So, any loan originator, or lender, praying for lower rates soon is likely to be disappointed. (Today’s podcast can be found here and this week is sponsored by SimpleNexus, an nCino company and homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, incentive compensation, and business intelligence. Todays has an interview with SimpleNexus’ Andria Lightfoot on crafting a modern customer experience.) Broker and Lender Products, Software, and Services The assertion that “beauty is in the eye of the beholder” is put to the test each year by the World’s Ugliest Dog Contest, which is accepting entries now through June 21. The homeliest mutt will take home a top prize of $1,500. Unfortunately, those winnings won’t even come close to offsetting the mortgage opportunities lenders could miss this Spring without the right sales and marketing strategies. On March 9 at 2 pm ET, uncover the tools and tactics lenders MUST prioritize if they want to take full advantage of seasonal demand in TrustEngine’s (formerly Mortgage Coach and Sales Boomerang) free webinar featuring Dave Savage, Melissa Wright from American Pacific Mortgage, and Ben Miller from SimpleNexus, an nCino Company. Register and help your organization become the top dog of this Spring homebuying season.
Source: Mortgage News Daily
The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, increased 7.4 percent on a seasonally adjusted basis compared to the previous week. On an unadjusted basis, the Index was up 9 percent. The Refinance Index rose 9 percent from the previous week and was 76 percent lower than the same week in 2022. The refinance share of mortgage activity increased to 28.9 percent of total applications from 28.7 percent. [refiappschart] The Purchase Index was 7 percent higher than the prior week on a seasonally adjusted basis and up 9 percent before adjustment. Purchase volume has declined 42 percent on an annual basis. [purchaseappschart] “Mortgage rates continued to increase last week. The 30-year fixed rate rose to 6.79 percent – the highest level since November 2022 and 270 basis points higher than a year ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Even with higher rates, there was an uptick in applications last week, but this was in comparison to two weeks of declines to very low levels, including a holiday week. Comparing the application indices from a year ago, purchase applications were still down 42 percent, and refinance activity was down 76 percent . Many borrowers are waiting on the sidelines for rates to come back down.” Other Highlights from MBA’s Weekly Mortgage Applications Survey
Source: Mortgage News Daily
Jerome Powell is the Chair of the Federal Reserve–the entity that sets overnight lending rates in an attempt to keep inflation in a low, stable range. Inflation has been anything but low and stable recently, so the Fed has hiked overnight rates at the fastest pace in 40 years. Mortgage rates have also risen at the fastest pace in 40 years, but they are not directly dictated by the Fed. Rather, the Fed’s direct influence on overnight rates spills over to the rest of the rate market. The longer the duration of any given borrowing term, the less connected the interest rate may be to the Fed Funds Rate. Moreover, the market adjusts expectations for the Fed Funds Rate constantly whereas the Fed only officially hikes/cuts 8 times a year. When the Fed meets again in 2 weeks, they will certainly be hiking rates again. The only question is “by how much?” Markets had been steadfast in their expectations for a 0.25% hike, which is viewed as the minimum increment for a rate change from the Fed. With some recent data indicating plenty of economic resilience and persistent inflationary pressures, calls have increased for a 0.50% hike. In a scheduled testimony before the Senate Banking Committee today, Fed Chair Powell stopped short of specifying a number for the next rate hike, but commented qualitatively on the need to hike faster/more than previously expected. Markets consequently upped the odds for a bigger hike in 2 weeks as well as a higher ceiling expected by the end of 2023.
Source: Mortgage News Daily
Rate Hike Expectations Ramp Up Post Powell
Even though Fed Chair Powell didn’t say anything remarkably new or different, markets read enough into his delivery to change the course of Fed Funds Rate expectations in a meaningful way. December’s forecast (per Fed Funds Futures) was closer to 5.3% this morning, but rose to 5.5% by 2pm. There was even a reaction for the meeting in 2 weeks. Markets don’t see a 50bp hike yet, but the reaction suggests that could change if NFP and CPI data come in hot between now and then. Short-term yields got whacked. 30yr yields moved lower on the day. MBS split the difference and sold off moderately. Today’s video explains all of the above in greater detail.
Econ Data / Events
Wholesale Inventories
-0.4 vs -0.4 f’cast/prev
Market Movement Recap
09:04 AM modestly stronger overnight with lower volume exaggerating an EU-led rally. 10yr down 2.6bps at 3.94. MBS up 2 ticks (.06).
10:38 AM Initially weaker on Powell’s prepared comments. Brief bounce back, but settling at unchanged to slightly weaker levels. 10yr up half a bp to 3.97%. MBS down just under a quarter point.
12:49 PM Moving back into positive territory now, mostly due to curve trading (yield curve -102.6bs!). 10yr down 2.8bps at 3.938 and MBS up 1 tick (0.03).
02:08 PM Weaker since 1pm with MBS down a quarter point from most recent highs and just over a quarter point on the day. 10yr up almost 1bp at 3.974.
Source: Mortgage News Daily
While the musical world mourns the loss of Gary Rossington, the last original Lynyrd Skynyrd band member, and I head to San Diego this morning for the TMC event, but I’ve heard through channels that my cat Myrtle is thinking about copywriting her trill after hearing the news that the Toblerone candy company is removing the Matterhorn from its label due to pressure from Swiss authorities: 80 percent of raw materials must come from Switzerland, so it’s a numbers game. Being a loan officer is a numbers game: so many calls and emails per day, yield so many call backs, yield so many applications, yield so many eventual closings. Day after day, and it is not glamorous. There’s a dog team race that is also a numbers game. The 1,000-mile Iditarod kicked off in Willow, Alaska, 70 miles north of Anchorage, with a finish line in Nome. This year there are only 33 mushers, a record low since the first race in 1973. The average number of starts in the first 50 races was 63 contenders, but only 823 mushers have reached the finish line and in the past 50 years only 24 individual people were on the teams of dogs that have won it. (Today’s podcast can be found here and this week is sponsored by SimpleNexus, an nCino company and homeownership platform that unites the people, systems, and stages of the mortgage process into one seamless, end-to-end solution that spans engagement, origination, closing, incentive compensation, and business intelligence. Todays has an interview with Change Wholesale’s Ryan Carry on what it means to be a CDFI and how that helps the communities Change serves.)
Source: Mortgage News Daily
5 weeks ago, markets digested a very ho-hum Fed announcement and rate hike, eventually rallying to the prevailing range floor just under 3.40% in 10yr yields. A day and a half later, the 517k NFP number caused yields to blast off on a fantastically frustrating voyage up an over 4%.
Powell had a chance to comment on the NFP shocker a few days later and basically said “see! This is what we’re trying to warn you guys about!” He stopped short of saying the Fed should move back up to 50bp hikes or consider changing the well-established game plan of ‘a few more hikes, then hold.”
Since that post-NFP appearance, there have been several more data-driven rate spikes. Markets are anxious to see if the balance of that data is enough for Powell to sing a different tune, thus providing a valuable preview of the next Fed meeting in 2 weeks. The base case would be for him to bowl down the middle and leave it up to the forthcoming CPI and NFP numbers to determine the need for policy adjustments.
Source: Mortgage News Daily
Stronger Start Gives Way to Weaker Finish
Bonds improved in overnight trading with most of the gains seen during European trading hours. The friendly trend reversed almost immediately after the US trading session. There were not obvious catalysts for the shift in terms of news or data. Rather, traders were likely reacting to a rapidly growing slate of corporate bond issuance on an already busy week of bond market supply. The net effect wasn’t too traumatic, with 10yr yields only a few bps higher by 3pm and MBS down an eighth of a point, but the trip from the highs to the lows was bumpy enough for more than a few negative reprices.
Econ Data / Events
Factory Orders
-1.6 vs -1.8 f’cast, 1.7 prev
Market Movement Recap
09:30 AM Modestly stronger in Asia with better gains in Europe amid volatile trading. Losing some overnight gains now, but 10yr still down 3.2bps at 3.926. MBS up 2 ticks.
12:11 PM MBS down to unchanged, 10yr up 1.1 bps at 3.97. EU and corporate issuance leading the weakness.
02:07 PM Steady selling continues with bonds at weakest levels. 10yr up 2.3bps at 3.981. MBS down an eighth on the day and almost 3/8ths from the highs.
Source: Mortgage News Daily
