Uneventfully Weaker Regardless of Durable Goods Data
Bonds were weaker in the overnight session on a combination of anxiety over potential sales of US Treasuries in Japan and European economic data. The domestic session brought actual selling of US Treasuries in the form of the 5yr Treasury auction, but the market already knew about that one. The auction was reasonably well received and had no impact on trading levels. Earlier in the morning, Durable Goods came out right in line with expectations and also had essentially no impact. Overnight weakness was maintained throughout the day with most of the momentum being sideways near recent highs yields.
Econ Data / Events
Durable Goods
2.6 vs 2.5 f'cast
last month revised from 1.3 to 0.7
Durables, excluding defense and aircraft
0.2 vs 0.2 f'cast
last month revised from 0.7 to 0.4
Market Movement Recap
09:06 AM Weaker overnight and little-changed after AM econ data. 10yr yield up 4.1bps at 4.644. MBS down 6 ticks (.19).
10:51 AM Weakest levels. MBS down 7 ticks (.22) and 10yr up 5.6bps at 4.657
01:04 PM Boring 5yr auction. No major reaction. MBS down 5 ticks (.16). 10yr up 4.8bps at 4.649.
03:55 PM Roughly unchanged from the last update and mostly flat since the late AM hours.
The average mortgage lender was able to offer conventional 30yr fixed rates that were very close to yesterday's levels despite bond market movement that suggested a bigger spike. In a vast majority of cases, if the bond market is in weaker territory compared to the previous day, rates will be higher in proportion to that weakness. In today's case, rates moved higher by an arguably insignificant 0.01% on average. Bonds suggested the increase should be more like 0.03-0.05%. Lenders were able to hold the line due to the timing of yesterday's bond market improvement and the fact that it was not fully priced in to rate offerings. In other words, if mortgage lenders were painters, they got a delivery of some nice new paint yesterday but didn't have time or inclination to get it all on the canvas. Now today, some of that paint has gone missing, thus leaving the big picture to look almost exactly like yesterday's.
Sometimes you just have to “risk it for the biscuit.” Capital markets are, for the most part, a little more complicated than, say, a recipe for next level dark chocolate brownies with salted caramel. Occasionally the topic of LOs or brokers being able to lock a loan, any time, any day, comes up. The New York Stock Exchange, owned by Intercontinental Exchange (ICE) has started polling market participants on their interest in and potential implications of an exchange that trades stocks 24/7. The polling underscores growing interest in trading stocks in off-hours. Could MBS be far behind? The survey comes after 24 Exchange, backed by Steven Cohen's Point72, applied with the Securities and Exchange Commission to start the first 24-hour exchange. The prospect of 24-hour trading, which would likely lead to changes across the ecosystem, becomes a heavier lift for exchanges as they're supervised by the SEC. Found here, this week’s podcasts are sponsored by Calque. With The Trade-In Mortgage powered by Calque, homeowners can buy before they sell, make non-contingent offers, and tap their home equity to fund the down payment on their next home. Today’s has an interview with Michael Bremer and Peter Kallodaychsak on interactions between lenders and Realtors in the wake of the proposed NAR settlement. Lender and Broker Products, Software, and Services Down Payment Resource’s Q1 2024 Homeownership Program Index (HPI) report reveals the largest annual jump in programs since it began tracking data in 2020, with 2,373 DPA programs now available nationwide. That’s 204 more programs than Q1 2023, a 9 percent YoY increase. DPR also noted that there’s at least one program in every U.S. county and 10 or more programs available in 2,000 counties, making it highly likely DPA could boost homeownership for borrowers in your footprint. The report also documents increases in programs for manufactured housing and multi-family purchases. Lenders are reminded that DPR is a software company, with a suite of tools to help you operationalize DPA to better serve your customers and lower your declines, especially among LMI buyers. Read the full report or schedule a demo to learn more.
The bond market has been decidedly more sideways after hitting longer-term yield highs last Tuesday. 10yr Treasuries have been a relatively narrow range since then, mostly respecting a ceiling of 4.65 and a floor of 4.57. The first two days of the week saw yields start near the ceiling and improve by the close. We're starting near the ceiling again today but so far, we haven't been as quick to rally.
Weakness began in the overnight session on a combination of factors. Tensions remain high heading into the Bank of Japan announcement (after the close on Thursday). Concerns center on the prospect of official selling of Treasuries in order to defend against additional weakness in Yen/USD exchange rates.
Losses continued after strong IFO data in Germany with some spillover between European and US yields.
In general though, US yields have been trending gradually higher since hitting the lows yesterday afternoon. Neither the IFO data, nor the U.S. Durable Goods reaction have caused much deflection.
The afternoon's key event is the 5yr Treasury auction at 1pm ET. These don't usually cause big reactions, but it's definitely capable of intraday volatility and/or shifting an intraday trend.
The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, fell back for the first time in three weeks during the week ended Aril 19 as interest rates continued to rise. The Index declined 2.7 percent on a seasonally adjusted basis from one week earlier and was 2.0 percent lower before adjustment. The Refinance Index decreased 6.0 percent from the previous week and was 3.0 percent higher than the same week in 2023. The refinance share of applications was also down, declining to 30.8 percent from 32.1 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index decreased 1.0 percent, the fifth decline in the last six weeks. The unadjusted Purchase Index did increase fractionally but was 15 percent lower than during the same week one year ago. [purchaseappschart] “Mortgage rates continued to move higher last week, reaching their highest levels since late 2023 and putting a damper on applications activity. The 30-year fixed rate increased for the third consecutive week to 7.24 percent, the highest since November 2023,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Purchase applications declined, as home buyers delayed their purchase decisions due to strained affordability and low supply. T he ARM share of applications increased to 7.6 percent, consistent with the upward trend in rates, as buyers look to reduce their potential monthly payments.”
Straightforward Gains After PMI Data
Tuesday's session was infinitely more interesting than Monday's with the caveat being Monday was a total snooze-fest. Bond market volumes were much closer to recent averages and there was even some logical, data-driven volatility. As always, volatility can go both ways and today's went the right way after S&P PMIs came in well below forecast in both Manufacturing and Services sectors. Relative to recent norms, the move was far from big, but it looked big compared to Monday. Notably, even before the data, yields were holding under the technical level at 4.65. The gains merely solidify the sideways vibes that have been in place since the middle of last week.
Econ Data / Events
S&P Services PMI
50.9 vs 52.0 f'cast
S&P Manufacturing PMI
49.9 vs 52.0 f'cast
Market Movement Recap
09:58 AM Weaker overnight, but erasing losses after PMI data. 10yr down 2.6bps at 4.584. MBS unchanged in 6.0 coupons, up 6 ticks (.19) from lows.
10:31 AM MBS catching up with the rally, now up 5 ticks (.16). 10yr down 3.2bps at 4.578.
01:12 PM Solid 2yr auction. Near best levels. 10yr down 3.7bps at 4.573. MBS up 6 ticks (.19).
03:25 PM Off the best levels, but not by much. MBS up an eighth on the day. 10yr down 1bp at 4.60
Mortgage rates are driven by day to day changes in the bond market. Bonds are focused on the Fed and the economic data that shapes Fed decisions. Today's data isn't necessarily big on the Fed's radar, but the market reacted due to its implications on other data. Specifically, the S&P Purchasing Managers Indices (PMIs) came in lower than expected for both the services and manufacturing sectors. PMIs can be thought of as fairly timely, general barometers for the economy because they ask the financial decision makers at businesses about the current state of affairs as well as future plans. One of the topics concerns "prices" which is the hottest of hot buttons for rates these days. On that note, the data mentioned lower price pressures in April due to a deterioration of demand and a slight softening in the labor market. S&P's PMIs aren't as big of a deal for rates as a similar set of PMIs published by the Institute for Supply Management (ISM), but we have to wait until next week for the latter. The first mover advantage of today's data helped drive the reaction. Thankfully, it was good for rates with the average lender moving down to the lowest levels since Friday, April 12th.
Existing home sales posted strong gains in February while sales of new homes slipped slightly. In March each category switched directions. The U.S. Census Bureau and the Department of Housing and Urban Development said newly constructed homes sold at a seasonally adjusted annual rate of 693,000 compared to 668,000 in February while the National Association of Realtors® (NAR) reported that existing home sales fell from a rate of 4.38 million units the prior month to 4.19 million. The increase in new home sales put those transactions up 8.8 percent compared to February and 8.3 percent higher than the March 2023 pace. Sales of previously owned single-family homes, townhouses, condos, and cooperative apartments were down 4.3 percent and 3.7 percent compared to the two earlier periods. [newhomesall] Existing single-family home sales also declined 4.3 percent in March to a 3.97-million-unit sales pace while condo and cooperative apartment sales were down 4.9 percent to 390,000 units. Single-family sales were 2.8 percent and multi-family sales were 11.4 percent lower year-over-year. New home sales rose by 10,000 units from February to 67,000 on a non-seasonally adjusted basis. Analysts polled by Trading Economics had expected new home sales to remain at February’s 668,000 level and had expected a smaller 2.2 percent decline in existing home sales to 4.2 million units. The inventory of new homes remains healthy with 477,000 unsold homes , an estimated 8.3-month supply at the current rate of sales and a monthly increase of 5.7 percent. The number of existing homes available for sale did increase by 4.7 percent to 1.11 million units but remains anemic at a 3.2-month supply.
Is it any surprise to see a strong reaction to economic data when the phrase "data dependent" has come to unequivocally rule all other approaches to understanding the interest rate outlook? Yes, actually, it can sometimes still be a surprise because data dependency depends on the data being depended upon. In today's case, we have a report that has been inconsequential more often than not over the past decade, but increasingly relevant in the last 2 years. There could be some debate as to whether that's due to the gradual increase of acceptance for S&P's PMI data in a country where ISM has long been the dominant source of PMI data or whether it's simply due to the bond market's strong desire for econ data. Either way, it's a market mover today.
The reaction is so blatantly obvious that it begs the question as to how the underlaying data justifies the move. After all, there wasn't a huge departure in Indices themselves. We'll focus on the services side of the economy here, just to keep the chart simple, but the takeaway from Manufacturing is no different.
Broader context is helpful. Today's move in yields is well within the weekly range and not-at-all meaningful in the bigger picture. In other words, it becomes less impressive the more we zoom out.
“The next time you dislike your life, remember it’s all about perspective. I know someone who reads 2-3 books a week, works out twice a day, has no financial worries, and has people who want to have sex with him all the time. Yet he constantly complains how much he hates prison.” Being “locked up” with a 3 percent loan on a home is misleading and is certainly not imprisonment. In fact, people are indeed selling. “’We can’t just let our kids grow up while the Fed figures out what they think about inflation,’ said Luke Bolton, who listed his home in March and expects to close soon on a purchase.” Perhaps the “lock in effect” is ebbing ahead of the summer purchase season. Some of it is geographical… Midlife crises are alive and well, as Miami is officially the city in which Gen Xers made up the largest share of potential homebuyers. (I don’t know how a generation moved down to only being 14 years, but Gen X are those born from the mid-1960s to the late 1970s.) Lenders are coming up with creative solutions of home affordability issues, like LoanSense. Or found here, this week’s podcasts are sponsored by Calque. With The Trade-In Mortgage powered by Calque, homeowners can buy before they sell, make non-contingent offers, and tap their home equity to fund the down payment on their next home. Today’s has an interview with influencer Ally Carty on carving a path in mortgage as a young person in the industry. Lender and Broker Products, Software, and Services
