Yields "Plummet" to Best Level In...
4 trading days... All the way back on October 2nd (last Friday), intraday lows were 5.151%. In other words, today's rally was definitely nice and definitely worth discussing, but if we're witnessing the inception of anything legitimately exciting here, it's in an embryonic stage as of today. 10yr yields would need to be below 5.0% just over a month from now to confirm a truly big shift. As for drivers, we'd have a hard time reconciling today's friendly reversal without giving some credit to investors "buying the dip" in bond prices (or the supportive ceiling in yields around 5.33-5.35). Additional mid-day gains followed war headlines and a decently strong 30yr bond auction. No major data tomorrow.
Market Movement Recap
01:04 PM Mid-day gains after war-related headlines. Ho-hum Treasury auction, but it would have been strong if not for the rally leading up to it. 10yr at best levels, down 5 bps at 5.622. MBS up nearly a quarter point.
Mortgage rates moved lower today at their fastest pace in 3 months with the average top-tier 30yr fixed scenario ultimately falling 0.09%. There were thrills and chills along the way as well. The day actually began with a 0.01% INCREASE versus yesterday's latest levels. This highlights a unique aspect of our rate index which has the ability to change more than once per day in response to mortgage lenders making intraday updates to their rate offerings. In other words, almost every lender lowered their rates today--many of them more than once. As has often been the case lately, the market movement can't be traced to one standout event. There was certainly some benefit from mid-day headlines regarding the Iran war, but that alone was scarcely sufficient to be labeled as the x factor. A forensic review of the underlying market suggests a meaningful amount of support came from investors "deciding" that bond yields were high enough to be worth some more asset allocation. In other words, investors are less interested in adding bonds to their portfolio if yields are climbing and at risk of climbing more. But at a certain point, yields are high enough to serve as a good entry point for investors to jump back into bond ownership. This phenomenon doesn't necessarily hearken additional downward momentum, but some would say it makes a case that recent ceilings should continue to be supportive unless new data comes to light that is unfavorable for bonds. In the current case, the nearest data with that kind of power would probably be next week's inflation reports on Wed/Thu. [thirtyyearmortgagerates]
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Bonds were initially moderately weaker this morning morning in a move that followed oil prices and hawkish Fed comments. Chris Waller said more hikes were needed due to a strong economy, persistently high inflation, and the risk that inflation expectations would become unanchored after 5.5 years above target. This hit the short end of the curve at 4:30am ET and brought Fed Funds Futures for the middle of next year back to yesterday's levels. Oil prices were rising at the same time and were already pushing bonds higher (or the correlation is coincidental, and bonds just "felt like" correcting a bit).
In the last few minutes, 10yr yields made it all the way back to unchanged for reasons unknown, although someone will try to tell you it had to do with Europe and the ongoing bond market volatility there. They're wrong in this case even though Europe has been a factor on several recent occasions.
Now it's time to play "name that line." The following chart has 3 lines. One is the 10yr yield. One is oil. One is the implied yield for Fed Funds Rate in June 2027. See if you can guess which is which. Well, nevermind. It doesn't really matter, right?
Seriously though, the "Waller" caption gives it away. The orange line has to be Fed Funds Futures because it's not nearly as active as the other two (if you didn't already know, there are far fewer trades in Fed Funds Futures than in bonds or oil). The blue line therefore has to be 10yr yields. Well, it doesn't HAVE TO be, but it's much more likely to be because it moves with Fed Funds Futures whereas the red line does not (i.e. Fed rate outlook is more likely to correlate with the rest of the bond market than with oil prices).
Full Recovery!
The patient looked critical this morning with 10yr yields pushing up to new long-term highs just over 5.36%, but by the early afternoon, there was a full recovery. In fact, most of the recovery arrived after 9:30am ET (and before 11am ET). Any time 9:30am kicks off a big move, we think about things like ETF tradeflows and other money shuffling in the retail investor space. Oil prices also moved lower at that time, but not enough to justify the swings seen in the bond market. The afternoon's 10yr Treasury auction was well-received (as they often are when yields tag long-term highs). The follow-through helped complete the round trip, ultimately leaving yields about 1bp lower by 3pm ET and MBS a few bps higher.
Market Movement Recap
10:28 AM Sharply weaker overnight, but recovering a bit now. MBS down about a quarter point and 10yr up 3.6bps at 5.32
01:03 PM Additional recovery after strong 10yr auction. 10yr now up less than 1bp on the day at 5.289 and MBS down only 2 ticks (.06).
It was an exciting day for mortgage rates, and while we technically ended up slightly higher, it could have been much worse. In fact, it WAS much worse earlier in the day, but only for about 30 minutes. Our daily rate index can be updated throughout the day if mortgage lenders change their rates in sufficient numbers. If we reported only the day's opening rate sheets, top-tier 30yr fixed rates would have been over 7.7%. Almost immediately after those initial rates came out (around 9:30am ET), the bond market started to recover. By 11am, multiple lenders had already improved. There was an additional round of improvement in the afternoon with almost every lender dropping their rates at least once (many of them more than once) by the end of the day. The net effect: today's average top-tier 30yr fixed rate rose only 0.03% versus yesterday to 7.59%--safely under recent highs.
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If there's been a safe bet to make on isolated rally days over the past 2 months, it's that they'll be soon followed by a return to the prevailing trend toward higher rates. Today fills that role with gusto. We hate gusto--this kind anyway. Unfortunately, this kind of gusto is all we have, and there's no convenient, singular explanation even though many will try to tell you there is. We can tell you that it's not oil, Europe, auctions, war headlines, corporate issuance, fiscal concerns, strong economy, or foreign demand. But at any given point in the uptrend, several of these things may be in play (other than "auction concerns"... that's just something someone says on auction day when they don't know why yields are higher).
Let's pick something to make fun of. The top pick would have to be "auction concerns," but there's no fun way to put that on a chart, so let's use "Treasuries are worried about France." If someone tells you that today, ask them to clarify whether it's higher or lower French yields that are good/bad for US yields, because all 4 combinations have been argued in the past week:
Today Was "Nice" For Bonds
Bonds bucked their prevailing trend and managed to move slightly lower in yield today. Unlike yesterday's session which had no clear correlation with underlying events, today's move traced a drop in oil prices fairly clearly. Some analysts thought that an improvement in French government bonds may have been mildly encouraging as well, but that would require drawing the opposite conclusions from last week's narrative about French bond turmoil benefiting the U.S. as a safer haven. In any event, the rally was too small to merit that much thought. Yields encountered resistance at 5.26%, but could also be broadly finding buying support when yields crest 5.3%. Bottom line, today was "nice," but in and of itself, not enough to suggest a meaningful shift in momentum.
Market Movement Recap
02:57 PM Near best levels. MBS up over a quarter point and 10yr down 3.8bps at 5.269
Mortgage rates actually fell today--something they've done only 7 times since August 25th. While the outright levels remain near the highest since 2003, they're near the lowest in just over a week with top-tier 30yr fixed rates down to 7.56% for the average lender. What gives? Is this a sign that recent upward momentum is starting to wane? It's too soon to conclude such things, but it is somewhat encouraging that yesterday's long-term high was basically right in line with the high seen on September 30th (7.61 vs 7.60). This is the sort of "double top" behavior that some analysts look for when trying to identify momentum shifts. Bottom line: it's too soon to start celebrating. But it's better than the average day of late. [thirtyyearmortgagerates]
