26th July, 24
Straightforward Gains After Important Inflation Data
Straightforward Gains After Important Inflation Data While today's monthly core PCE headline may have technically been higher than the median forecast, a vast majority of forecasters abstained from submitting updated guesses to data aggregators after yesterday's quarterly PCE data. Had they been compelled to do so, the forecast would almost certainly have risen to 0.2 from 0.1 and today's unrounded number of 0.182 would be the logical beat that the market traded... logically. In fact, one might call the 2 day action "boring" considering this morning's quick PCE-driven rally almost perfectly offset yesterday's PCE-driven sell-off and neither was very big in the bigger picture. Econ Data / Events Core M/M PCE 0.2 vs 0.1 f'cast, 0.1 prev (unrounded = 0.182%) Core Y/Y PCE 2.6 vs 2.5 f'cast, 2.6 prev Incomes 0.2 vs 0.4 f'cast, 0.4 prev Outlays 0.3 vs 0.3 f'cast, 0.4 prev Consumer Sentiment 66.4 vs 66.0 f'cast, 68.2 prev Market Movement Recap 08:40 AM 10s are down 2.6bps at 4.218 and MBS are up 2 ticks (.06). 12:11 PM Mostly sideways after initial rally. MBS up 6 ticks (.19) and 10yr down 3.7bps at 4.207 02:28 PM Flat at same strong levels. MBS up 7 ticks (.22) and 10yr down 4.3bps at 4.201. 05:50 PM 10yr out the door down 4.7bps at 4.196 and MBS ended up just over a quarter point.
Straightforward Gains After Important Inflation Data
Straightforward Gains After Important Inflation Data While today's monthly core PCE headline may have technically been higher than the median forecast, a vast majority of forecasters abstained from submitting updated guesses to data aggregators after yesterday's quarterly PCE data. Had they been compelled to do so, the forecast would almost certainly have risen to 0.2 from 0.1 and today's unrounded number of 0.182 would be the logical beat that the market traded... logically. In fact, one might call the 2 day action "boring" considering this morning's quick PCE-driven rally almost perfectly offset yesterday's PCE-driven sell-off and neither was very big in the bigger picture. Econ Data / Events Core M/M PCE 0.2 vs 0.1 f'cast, 0.1 prev (unrounded = 0.182%) Core Y/Y PCE 2.6 vs 2.5 f'cast, 2.6 prev Incomes 0.2 vs 0.4 f'cast, 0.4 prev Outlays 0.3 vs 0.3 f'cast, 0.4 prev Consumer Sentiment 66.4 vs 66.0 f'cast, 68.2 prev Market Movement Recap 08:40 AM 10s are down 2.6bps at 4.218 and MBS are up 2 ticks (.06). 12:11 PM Mostly sideways after initial rally. MBS up 6 ticks (.19) and 10yr down 3.7bps at 4.207 02:28 PM Flat at same strong levels. MBS up 7 ticks (.22) and 10yr down 4.3bps at 4.201. 05:50 PM 10yr out the door down 4.7bps at 4.196 and MBS ended up just over a quarter point.
26th July, 24
Inflation Data Continues Paving The Way For (Eventual) Rate Cuts
This week's most important economic data was the PCE price index which is the gold standard of big picture inflation measurement. For those hoping to see rates drop, it was important for PCE to confirm the progress seen in the CPI data (the other major inflation index that came out 2 weeks ago). Spoiler alert: PCE confirmed the progress, but there are a few nuances. Perhaps most importantly, this week's PCE data covers the same time frame as the CPI data two weeks ago. In other words, it's not quite as awesome as 2 consecutive months of "mission accomplished" levels of inflation (which has now arguably been cemented for June), but it's nonetheless an important milestone in the path toward rate cuts. What exactly does "mission accomplished" mean? This simply refers to Fed's 2% annual inflation target, typically tracked via Core PCE which excludes more volatile food and energy prices. In order to hit 2%, monthly inflation readings need to average roughly .17%. This time around, it was .182%--definitely in the historical range of on-target inflation from before the pandemic. While the chart above makes it look like victory has been achieved, the inflation target is technically an annual thing, so we need to see more months in the target zone before the year over year number falls into line. Even then, the Fed has clearly stated that the annual change doesn't need to hit 2% as long as they're confident that it will. Prior to this week's data, the average Fed member has expressed an increasing amount of said confidence. It's not thought to be enough for a rate cut at next week's Fed meeting, but it's widely believed to result in a September rate cut, as long as the data doesn't do anything crazy between now and then.
Inflation Data Continues Paving The Way For (Eventual) Rate Cuts
This week's most important economic data was the PCE price index which is the gold standard of big picture inflation measurement. For those hoping to see rates drop, it was important for PCE to confirm the progress seen in the CPI data (the other major inflation index that came out 2 weeks ago). Spoiler alert: PCE confirmed the progress, but there are a few nuances. Perhaps most importantly, this week's PCE data covers the same time frame as the CPI data two weeks ago. In other words, it's not quite as awesome as 2 consecutive months of "mission accomplished" levels of inflation (which has now arguably been cemented for June), but it's nonetheless an important milestone in the path toward rate cuts. What exactly does "mission accomplished" mean? This simply refers to Fed's 2% annual inflation target, typically tracked via Core PCE which excludes more volatile food and energy prices. In order to hit 2%, monthly inflation readings need to average roughly .17%. This time around, it was .182%--definitely in the historical range of on-target inflation from before the pandemic. While the chart above makes it look like victory has been achieved, the inflation target is technically an annual thing, so we need to see more months in the target zone before the year over year number falls into line. Even then, the Fed has clearly stated that the annual change doesn't need to hit 2% as long as they're confident that it will. Prior to this week's data, the average Fed member has expressed an increasing amount of said confidence. It's not thought to be enough for a rate cut at next week's Fed meeting, but it's widely believed to result in a September rate cut, as long as the data doesn't do anything crazy between now and then.
26th July, 24
DPA, Virtual Assistant, Non-QM products; Events, Training, and Webinars
The only thing constant is change. After 53 years, Southwest Airlines is ending its 100 percent open seating policy! (I don’t mind lining up.) People and companies have to adjust… Time waits for no one. What were concerts like in 1964, 60 years ago? Here’s an interesting chart that shows where the U.S. Government pegged interest rates through history, including 1964. (In the 4’s.) While we’re on interest rates, many clamor for lower rates, whether that means 6 or 5 or 4 percent is unclear. There’s a lot of talk about the Federal Reserve’s Open Market Committee lowering the fed funds target rates in September when the Fed meets. But lenders know that an interest rate cut might not translate into immediately lower mortgage rates. Ask your capital markets staff: The bond market is already pricing in rate cuts, so the simple act of the Fed cutting is not necessarily going to have a direct impact on mortgage rates. (Today’s podcast is found here and this week’s is sponsored by LoanCare, known for delivering superior customer experience as a mortgage subservicer through personalization and convenience, and supporting MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with NJ Lenders’ Steve Grossman on coaching his sales staff to get the best out of them.) Lender and Broker Software, Products, and Services Deephaven Mortgage is excited to announce that it is hosting its own non-QM event, Non-QM Power Pulse, along with Anchor Loans on September 18th 8:30 am to 12:30 pm in Hollywood Beach, Florida! Deephaven is committed to support, educate and deliver resources to the entire real estate community. Chief Sales Officer at Deephaven Tom Davis, Managing Director of National Accounts at Deephaven Tyler Bohn and VP of Business Development at Anchor Loans Dave Gray join other industry experts to deliver educational panels focused on helping you increase your volume. In one day, you will gain the power to: Stay ahead of the competition, increase your volume and referral base, network with top Realtors, investors, and loan originators! You will also learn how to promote Ground Up Construction and Fix and Flip programs to investors. Register now and join us so that you can offer a full suite of investor loans for your clients to build their portfolios and differentiate yourself in the market. Register Now!
DPA, Virtual Assistant, Non-QM products; Events, Training, and Webinars
The only thing constant is change. After 53 years, Southwest Airlines is ending its 100 percent open seating policy! (I don’t mind lining up.) People and companies have to adjust… Time waits for no one. What were concerts like in 1964, 60 years ago? Here’s an interesting chart that shows where the U.S. Government pegged interest rates through history, including 1964. (In the 4’s.) While we’re on interest rates, many clamor for lower rates, whether that means 6 or 5 or 4 percent is unclear. There’s a lot of talk about the Federal Reserve’s Open Market Committee lowering the fed funds target rates in September when the Fed meets. But lenders know that an interest rate cut might not translate into immediately lower mortgage rates. Ask your capital markets staff: The bond market is already pricing in rate cuts, so the simple act of the Fed cutting is not necessarily going to have a direct impact on mortgage rates. (Today’s podcast is found here and this week’s is sponsored by LoanCare, known for delivering superior customer experience as a mortgage subservicer through personalization and convenience, and supporting MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with NJ Lenders’ Steve Grossman on coaching his sales staff to get the best out of them.) Lender and Broker Software, Products, and Services Deephaven Mortgage is excited to announce that it is hosting its own non-QM event, Non-QM Power Pulse, along with Anchor Loans on September 18th 8:30 am to 12:30 pm in Hollywood Beach, Florida! Deephaven is committed to support, educate and deliver resources to the entire real estate community. Chief Sales Officer at Deephaven Tom Davis, Managing Director of National Accounts at Deephaven Tyler Bohn and VP of Business Development at Anchor Loans Dave Gray join other industry experts to deliver educational panels focused on helping you increase your volume. In one day, you will gain the power to: Stay ahead of the competition, increase your volume and referral base, network with top Realtors, investors, and loan originators! You will also learn how to promote Ground Up Construction and Fix and Flip programs to investors. Register now and join us so that you can offer a full suite of investor loans for your clients to build their portfolios and differentiate yourself in the market. Register Now!
26th July, 24
Bonds Rallying Despite Higher Core PCE
After yesterday's quarter over quarter core PCE price index came in 0.2% higher than expected, we knew today's monthly PCE data would have to include higher numbers divided across the months of April, May, and June in some unknown proportion. If April and May were not revised, it suggested an unrounded monthly core PCE of 0.37 today, which would have rounded to a 0.4% headline versus the 0.1% forecast. But that would be very uncommon, so markets split the difference and figured the extra inflation would be spread more evenly across the quarter. Forecasters who updated their predictions changed to 0.2% for the m/m core number, and that's exactly what we got. The more we drill down, the better the news gets. After all, 0.2 is a rounded number. The unrounded version was 0.182... even better! Perhaps just as important was the fact that the housing component of the PCE data fell to its lowest level since it was first on the way up in 2021. The following heat map shows another way to visualize the progress: The main takeaway is really the same in that it shows significant cooling in what has been the most problematic sector. It also serves to remind us that there are months like January that will continue to distort 6 month and 1 year metrics. Bottom line to all this: the market knew the previous 0.1% forecast for today's core PCE was a long shot after yesterday. That's why we sold off yesterday instead of today. Now that today's PCE came out with what was probably the softest possible realization of yesterday's warning, bonds are breathing a small sigh of relief, moving to the stronger end of this week's range.
Bonds Rallying Despite Higher Core PCE
After yesterday's quarter over quarter core PCE price index came in 0.2% higher than expected, we knew today's monthly PCE data would have to include higher numbers divided across the months of April, May, and June in some unknown proportion. If April and May were not revised, it suggested an unrounded monthly core PCE of 0.37 today, which would have rounded to a 0.4% headline versus the 0.1% forecast. But that would be very uncommon, so markets split the difference and figured the extra inflation would be spread more evenly across the quarter. Forecasters who updated their predictions changed to 0.2% for the m/m core number, and that's exactly what we got. The more we drill down, the better the news gets. After all, 0.2 is a rounded number. The unrounded version was 0.182... even better! Perhaps just as important was the fact that the housing component of the PCE data fell to its lowest level since it was first on the way up in 2021. The following heat map shows another way to visualize the progress: The main takeaway is really the same in that it shows significant cooling in what has been the most problematic sector. It also serves to remind us that there are months like January that will continue to distort 6 month and 1 year metrics. Bottom line to all this: the market knew the previous 0.1% forecast for today's core PCE was a long shot after yesterday. That's why we sold off yesterday instead of today. Now that today's PCE came out with what was probably the softest possible realization of yesterday's warning, bonds are breathing a small sigh of relief, moving to the stronger end of this week's range.
25th July, 24
Lots of Competing Motivations Causing Volatility In a Narrow Range
Lots of Competing Motivations Causing Volatility In a Narrow Range Today marked an uptick in the importance of economic data for the week and it had obvious consequences for volatility. Of particular importance was the higher reading in quarterly PCE prices. Because this is the first look at Q2 data, it's one of 4 days each year where the PCE component of the GDP data offers a sneak peek at the full PCE report that comes out the following morning. the 2.9 vs 2.7 reading suggests there's extra inflation that will be distributed between April, May, and June. If June accounts for more than the other two months, tomorrow's PCE index will be higher than expected, and thus bad for rates. That accounts for some weakness this morning, but traders are also in the midst of adjusting their yield curve positioning which has resulted in big discrepancies between longer and shorter term rates this week. Econ Data / Events Jobless Claims 235k vs 238k f'cast, 245k prev Durable Goods -6.6 vs 0.3 f'cast, 0.1 prev Nondefense ex-air Durable Goods 1.0 vs 0.2 f'cast, -0.9 prev GDP 2.8 vs 2.7 f'cast Core PCE Prices Q/Q 2.9 vs 2.7 f'cast Market Movement Recap 08:56 AM Sharply stronger overnight but losing ground after data. MBS still up 7 ticks (.22) and 10yr still down 5+ bps at 4.24. 11:51 AM Decent amount of volatility in the AM hours. Slightly negative drift, but MBS still up 6 ticks (.19) and 10yr still down 6bps at 4.229 01:43 PM Generally weaker after the auction, with losses focused on the short end. MBS still up an eighth. 10yr still down 3bps, but near highs of day at 4.258
Lots of Competing Motivations Causing Volatility In a Narrow Range
Lots of Competing Motivations Causing Volatility In a Narrow Range Today marked an uptick in the importance of economic data for the week and it had obvious consequences for volatility. Of particular importance was the higher reading in quarterly PCE prices. Because this is the first look at Q2 data, it's one of 4 days each year where the PCE component of the GDP data offers a sneak peek at the full PCE report that comes out the following morning. the 2.9 vs 2.7 reading suggests there's extra inflation that will be distributed between April, May, and June. If June accounts for more than the other two months, tomorrow's PCE index will be higher than expected, and thus bad for rates. That accounts for some weakness this morning, but traders are also in the midst of adjusting their yield curve positioning which has resulted in big discrepancies between longer and shorter term rates this week. Econ Data / Events Jobless Claims 235k vs 238k f'cast, 245k prev Durable Goods -6.6 vs 0.3 f'cast, 0.1 prev Nondefense ex-air Durable Goods 1.0 vs 0.2 f'cast, -0.9 prev GDP 2.8 vs 2.7 f'cast Core PCE Prices Q/Q 2.9 vs 2.7 f'cast Market Movement Recap 08:56 AM Sharply stronger overnight but losing ground after data. MBS still up 7 ticks (.22) and 10yr still down 5+ bps at 4.24. 11:51 AM Decent amount of volatility in the AM hours. Slightly negative drift, but MBS still up 6 ticks (.19) and 10yr still down 6bps at 4.229 01:43 PM Generally weaker after the auction, with losses focused on the short end. MBS still up an eighth. 10yr still down 3bps, but near highs of day at 4.258
25th July, 24
Mortgage Rates Inch to Another Short Term High
Mortgage rates continue moving in very small steps from day to day--something that's been the case since the Consumer Price Index (CPI) more than 2 weeks ago. Unfortunately, more of those steps have been higher in the past week, and today is no exception for most lenders. This is counterintuitive to those who closely follow bonds markets and who understand that mortgage rate movement closely matches those underlying market movements. Reason being: bonds are technically in stronger territory compared to yesterday. Strength in the bond market almost always coincides with lower mortgage rates, but the timing of that strength can cause some inconsistencies. For instance, bonds swooned yesterday afternoon and not every mortgage lender saw fit to raise rates in the middle of the business day in response. Those lenders consequently had to adjust for both yesterday's weakness and today's strength in their latest rate offerings. Lenders who issued late day reprices yesterday were able to hold steady this morning or even offer slightly lower rates today. If all of that is a bit confusing, just consider that, despite several ups and downs over the past 48 hours, bonds are in weaker territory than they were yesterday morning during the time when lenders publish rate sheets. Lenders either took their lumps yesterday afternoon or this morning. As for motivations, the market is rapidly adjusting its preferences for different durations of bonds. In other words, 2yr Treasury notes gained a ton of popularity over the past few days and even more since late June. This is mostly a factor of the shift in the outlook for the Fed Funds Rate. When traders make these adjustments, it can impact the bonds that more readily translate to mortgage rates.
Mortgage Rates Inch to Another Short Term High
Mortgage rates continue moving in very small steps from day to day--something that's been the case since the Consumer Price Index (CPI) more than 2 weeks ago. Unfortunately, more of those steps have been higher in the past week, and today is no exception for most lenders. This is counterintuitive to those who closely follow bonds markets and who understand that mortgage rate movement closely matches those underlying market movements. Reason being: bonds are technically in stronger territory compared to yesterday. Strength in the bond market almost always coincides with lower mortgage rates, but the timing of that strength can cause some inconsistencies. For instance, bonds swooned yesterday afternoon and not every mortgage lender saw fit to raise rates in the middle of the business day in response. Those lenders consequently had to adjust for both yesterday's weakness and today's strength in their latest rate offerings. Lenders who issued late day reprices yesterday were able to hold steady this morning or even offer slightly lower rates today. If all of that is a bit confusing, just consider that, despite several ups and downs over the past 48 hours, bonds are in weaker territory than they were yesterday morning during the time when lenders publish rate sheets. Lenders either took their lumps yesterday afternoon or this morning. As for motivations, the market is rapidly adjusting its preferences for different durations of bonds. In other words, 2yr Treasury notes gained a ton of popularity over the past few days and even more since late June. This is mostly a factor of the shift in the outlook for the Fed Funds Rate. When traders make these adjustments, it can impact the bonds that more readily translate to mortgage rates.
25th July, 24
Strong Start Despite Data Driven Volatility
It was easy to question the notion of "data dependence" in the first half of the week, largely because there wasn't much in terms of meaningful economic data. There were also several instances of mystery movement in bonds, forcing analysts to focus on curve trading as a thematic driver. What is curve trading? In not so many words, there's been a bit of a mad dash to get out of long term and into shorter term bonds since late June. Sometimes the moves line up with data and/or Treasury auctions. Other times, they've been more serendipitous. Curve trading has transcended the available economic data so far this week, but today's data is finally enough to get the market's attention. It also happens to coincide with potential resistance to the extremely quick move in the yield curve over the past 2 days (starting right after the 2yr auction). Data has been a 2 way street this morning with an initial sell-off followed by a recovery that coincided with opening weakness in stocks. Admittedly, this is not the prevailing short term relationship between stocks and bonds these days, but that may change as the Fed rate outlook solidifies and as investors watch for signs of economic contraction and/or cooling in equities.
Strong Start Despite Data Driven Volatility
It was easy to question the notion of "data dependence" in the first half of the week, largely because there wasn't much in terms of meaningful economic data. There were also several instances of mystery movement in bonds, forcing analysts to focus on curve trading as a thematic driver. What is curve trading? In not so many words, there's been a bit of a mad dash to get out of long term and into shorter term bonds since late June. Sometimes the moves line up with data and/or Treasury auctions. Other times, they've been more serendipitous. Curve trading has transcended the available economic data so far this week, but today's data is finally enough to get the market's attention. It also happens to coincide with potential resistance to the extremely quick move in the yield curve over the past 2 days (starting right after the 2yr auction). Data has been a 2 way street this morning with an initial sell-off followed by a recovery that coincided with opening weakness in stocks. Admittedly, this is not the prevailing short term relationship between stocks and bonds these days, but that may change as the Fed rate outlook solidifies and as investors watch for signs of economic contraction and/or cooling in equities.
25th July, 24
Hedging, VOE, DPA Products; Wholesaler and Program Changes; STRATMOR Ops Workshop
As lenders continue to deal with change (the latest rumors have Flagstar is selling its mortgage group to Mr. Cooper; rumor only, ask your rep for real information), many people took note when ex-President Trump claimed, during his recent speech, that, “mortgage rates have quadrupled” during the Biden Administration. So, if Agency 30-year fixed rate mortgages were 3 percent, due to the pandemic, not due to political policies, they’d be at 12 percent now. That is not the case. There are still economics to discuss (Fannie Mae’s Chief Economist Doug Duncan will be interviewed today) but politics seem to be sucking up all the air in the room, and no, this isn’t the situation in a historical third-world nation. The presumptive Democratic nominee dropped out of the race one month before his party’s convention. A former president, and 2024 candidate, convicted of 34 felonies in a New York courtroom. A highly controversial Supreme Court decision on presidential immunity. The most consequential presidential debate in U.S. history. An assassination attempt broadcast on live TV. A judge dismissing additional charges against the former president, citing the Supreme Court ruling. It’s political chaos, and it’s far from finished. (Today’s podcast is found here and this week’s is sponsored by LoanCare, known for delivering superior customer experience as a mortgage subservicer through personalization and convenience, and supporting MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with AXIS’ Michael Simmons that provides a “finger on the pulse” of the appraisal industry and current trends in the valuation space.)
Hedging, VOE, DPA Products; Wholesaler and Program Changes; STRATMOR Ops Workshop
As lenders continue to deal with change (the latest rumors have Flagstar is selling its mortgage group to Mr. Cooper; rumor only, ask your rep for real information), many people took note when ex-President Trump claimed, during his recent speech, that, “mortgage rates have quadrupled” during the Biden Administration. So, if Agency 30-year fixed rate mortgages were 3 percent, due to the pandemic, not due to political policies, they’d be at 12 percent now. That is not the case. There are still economics to discuss (Fannie Mae’s Chief Economist Doug Duncan will be interviewed today) but politics seem to be sucking up all the air in the room, and no, this isn’t the situation in a historical third-world nation. The presumptive Democratic nominee dropped out of the race one month before his party’s convention. A former president, and 2024 candidate, convicted of 34 felonies in a New York courtroom. A highly controversial Supreme Court decision on presidential immunity. The most consequential presidential debate in U.S. history. An assassination attempt broadcast on live TV. A judge dismissing additional charges against the former president, citing the Supreme Court ruling. It’s political chaos, and it’s far from finished. (Today’s podcast is found here and this week’s is sponsored by LoanCare, known for delivering superior customer experience as a mortgage subservicer through personalization and convenience, and supporting MSR investors with a focus on customer engagement, liquidity, and credit risk. Hear an interview with AXIS’ Michael Simmons that provides a “finger on the pulse” of the appraisal industry and current trends in the valuation space.)
24th July, 24
Mortgage Rates Move Up To 2 Week Highs After Starting Out Flat
Mortgage rates technically moved up to the highest levels in 2 weeks today, but that sounds a bit more dramatic than it actually is. Rates have largely held inside a narrow range close to the lowest levels in 6 months during that time. Today's weakness in the bond market just happened to nudge the average mortgage lender slightly above the highs seen this past Monday and Friday. The average borrower wouldn't see much of a difference between those rates and today's. As for the underlying motivation for the movement, it doesn't merit much discussion or investigation. After all, we just made the case that recent movements are all just different flavors of "flat." Still, we like to get to the bottom of things every day, even when some days are more important than others. In not so many words, the broader bond market is in the process of adjusting to a new reality in which the Fed begins to cut the Fed Funds Rate. Ironically, there are times when this will mean that longer term rates like 10yr Treasury yields and mortgage rates will move higher at the same time that shorter term rates (like 2yr Treasuries) are moving lower. This was a factor today as 2yr Treasuries improved more than twice as much as 10yr Treasuries deteriorated. The coming days are more likely to see bonds/rates reconnect with economic data as a primary motivation. There are several important reports on Thursday and Friday morning, but the data's significance will kick into even higher gear in the following two weeks.
Mortgage Rates Move Up To 2 Week Highs After Starting Out Flat
Mortgage rates technically moved up to the highest levels in 2 weeks today, but that sounds a bit more dramatic than it actually is. Rates have largely held inside a narrow range close to the lowest levels in 6 months during that time. Today's weakness in the bond market just happened to nudge the average mortgage lender slightly above the highs seen this past Monday and Friday. The average borrower wouldn't see much of a difference between those rates and today's. As for the underlying motivation for the movement, it doesn't merit much discussion or investigation. After all, we just made the case that recent movements are all just different flavors of "flat." Still, we like to get to the bottom of things every day, even when some days are more important than others. In not so many words, the broader bond market is in the process of adjusting to a new reality in which the Fed begins to cut the Fed Funds Rate. Ironically, there are times when this will mean that longer term rates like 10yr Treasury yields and mortgage rates will move higher at the same time that shorter term rates (like 2yr Treasuries) are moving lower. This was a factor today as 2yr Treasuries improved more than twice as much as 10yr Treasuries deteriorated. The coming days are more likely to see bonds/rates reconnect with economic data as a primary motivation. There are several important reports on Thursday and Friday morning, but the data's significance will kick into even higher gear in the following two weeks.
24th July, 24
Whatever Happened to Bonds Being Data Dependent?
Whatever Happened to Bonds Being Data Dependent? Bonds began the day in stronger territory and remained stronger through mid-day despite AM volatility. Some of the volatility was driven by economic data with S&P Global Services PMI coming in higher than expected. Most of the day's movement, however, was driven by "something else," and something else pushed longer term yields higher while allowing short term yields to remain lower. How do we reconcile that in this era where "data dependence" is so often repeated as the bond market's prime directive? First off, while today's volatility was unpleasant in the afternoon, it was very small in the bigger picture. It was also not so much about bond market weakness as it was about the yield curve normalizing. This is not a phenomenon that will always need to play out at the expense of the 10yr and MBS. That's just the way it played out today. Econ Data / Events Wholesale Inventories 0.2 vs 0.5 f'cast, 0.6 prev S&P Services PMI 56 vs 55 f'cast, 55.3 prev S&P Manufacturing PMI 49.5 vs 51.7 f'cast, 51.6 prev Market Movement Recap 11:00 AM Slightly stronger overnight, volatile after PMI data, but still in the green. MBS up an eighth. 10yr down 4bps at 4.211. 01:03 PM some weakness before and after 5yr auction. 10yr down 1.4bps at 4.238. MBS up 2 ticks (.06) 02:02 PM More weakness now. 10yr up 2.2bps at 4.273. MBS back to unchanged levels, down 6 ticks (.19) from highs. 03:56 PM MBS at weakest levels, down an eighth on the day and more than a quarter point from the highs. 10yr up 3bps at 4.281.
Whatever Happened to Bonds Being Data Dependent?
Whatever Happened to Bonds Being Data Dependent? Bonds began the day in stronger territory and remained stronger through mid-day despite AM volatility. Some of the volatility was driven by economic data with S&P Global Services PMI coming in higher than expected. Most of the day's movement, however, was driven by "something else," and something else pushed longer term yields higher while allowing short term yields to remain lower. How do we reconcile that in this era where "data dependence" is so often repeated as the bond market's prime directive? First off, while today's volatility was unpleasant in the afternoon, it was very small in the bigger picture. It was also not so much about bond market weakness as it was about the yield curve normalizing. This is not a phenomenon that will always need to play out at the expense of the 10yr and MBS. That's just the way it played out today. Econ Data / Events Wholesale Inventories 0.2 vs 0.5 f'cast, 0.6 prev S&P Services PMI 56 vs 55 f'cast, 55.3 prev S&P Manufacturing PMI 49.5 vs 51.7 f'cast, 51.6 prev Market Movement Recap 11:00 AM Slightly stronger overnight, volatile after PMI data, but still in the green. MBS up an eighth. 10yr down 4bps at 4.211. 01:03 PM some weakness before and after 5yr auction. 10yr down 1.4bps at 4.238. MBS up 2 ticks (.06) 02:02 PM More weakness now. 10yr up 2.2bps at 4.273. MBS back to unchanged levels, down 6 ticks (.19) from highs. 03:56 PM MBS at weakest levels, down an eighth on the day and more than a quarter point from the highs. 10yr up 3bps at 4.281.