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Unofficial 4-Day Weekend
MBS live will be operating in "holiday light" mode today. The weekly newsletter is on holiday but will be back next week. Commentary and alerts will only be written in the event of extra large bond market movement. How would that be defined? It's fairly simple in this case: unless yields are breaking out side of this week's trading range, nothing significant is happening. Even then, a range breakout on a day like today could easily be a byproduct of light Yes, 3.842 would be the better part of a 20bp sell-off, and that might seem like a big move, but I'm still telling you that would be meaningless in the bigger picture. On Thanksgiving week, we have to discount the pace of Wednesday's rally, and we would also discount the pace of a similarly-sized sell-off. After all, if last week closed at 3.833 and we've been saying all week to ignore these 3.5 trading days, then ending at 3.842 wouldn't mean much. Moreover, even if this were a full-fledged trading week, 3.842 would still only be at the top of the white rectangle and the more you back away from the chart, the smaller and smaller it looks.Source: Mortgage News Daily | 25 Nov 2022 | 2:11 pm
Rates End Week Little-Changed at Multi-Week Lows
Bond markets will be closed for Thanksgiving tomorrow. That means mortgage lenders won't be publishing new rates. While markets are technically open for a half day on Friday, it's just as well to consider it part of a 4-day weekend. Many mortgage lenders simply offer the same rates seen on Wednesday because market conditions are so unreliable. Today's full trading day brought modest gains for bonds--something that would normally imply a modest drop in mortgage rates. But the average lender is playing things safe this week, which is fairly typical. In this context "safe" means offering rates that are slightly higher than they otherwise would be during more normal times for financial markets. Nonetheless, mortgage rates have been hovering around the best levels since late September for two straight weeks now. The average conventional 30yr fixed rate is in the mid 6's.Source: Mortgage News Daily | 23 Nov 2022 | 8:42 pm
Rates Recover Nicely After Fed Minutes
Rates Recover Nicely After Fed Minutes Today was the only day of the holiday-shortened week with any meaningful economic data on the calendar. It's debatable whether we should pay much attention to the intraday volatility considering the narrowness of the range and the impending holiday weekend. The only abundantly clear takeaway is that markets were somewhat defensive heading into the 2pm Fed Minutes and then rallied to match the day's best levels afterwards. Incidentally, the day's best levels were right in line with the best levels since early October. Econ Data / Events Durable Goods 1.0 vs 0.4 f'cast, 0.3 prev Core Durable Goods 0.7 vs 0.0 f'cast, -0.8 prev last month revised down from -0.4 Jobless Claims 240k vs 225k f'cast, 223k prev Market Movement Recap 08:41 AM Sideways to slightly weaker overnight. Brief blip of buying after higher Jobless Claims, but 10yr still up 1.5bps at 3.772 and MBS down 6 ticks (.19). 09:39 AM Steady gains since the last update. 10yr yield down 3.4bps at 3.726. MBS up a quarter point and trading with better liquidity now. 12:21 PM Off the best levels now. 10yr still down 1.9bps at 3.739 and MBS still up an eighth of a point. 01:55 PM Giving up more ground ahead of the Fed Minutes. 10yr down only 1bp on the day at 3.75 and MBS unchanged after being up as much as 3/8ths. 02:05 PM Recovering sharply after rate-friendly Fed Minutes. 10yr down 4.3bps at 3.715. MBS up almost a quarter point after just being unchanged before the Minutes. 03:24 PM Gains maintained into the 3pm CME close. MBS up 10 ticks (.31) and 10yr right in line with the previous update (3.711 currently).Source: Mortgage News Daily | 23 Nov 2022 | 8:26 pm
Early Economic Warning Signs in The Data?
We'd be the first to advocate taking Thanksgiving week trading momentum with a grain of salt, so this morning's discussion is less about drawing connections to market movement and more about the general message in some of the econ data. In this case, it just happens to advocate for the stronger trading levels. One of the best indicators, weekly Jobless Claims, is also the most subtle. It's only up to 240k as of this morning, but that's highest since mid-August, and it contributes to the sense of an uptrend. Could this be the start of some softening in the labor market? If so, that checks one of the two big boxes for the Fed to soften its policy stance. But admittedly, it's a bit soon to be identifying a shift. Ideally, there would be more of a sideways range to give traders an obvious baseline against which to measure a breakout. The best we have at present is the previous high of 260k, which is a far cry from the fairly consistent range ceiling bounces seen before the last major economic shift. While a break above 260k would certainly be net positive for bonds, the big difference versus 2007 is the presence of an even more important indicator in the form of inflation. The Fed has been clear that it will sacrifice plenty of labor market strength in the name of fighting inflation. We also need to specify what we mean by "bonds." An absence of traction on the inflation front would be far more damning for a 2yr Treasury whereas 10yr Treasuries would be more capable of reacting to other economic data. Indeed, that's the most obvious reason that the yield curve is more than 75bps inverted this morning. Other economic data out this morning includes Consumer Sentiment, which paints an even gloomier picture. A few months ago, we were able to blame a fuel price spike for the lowest levels in 40 years, but today's update follows a big drop in fuel prices and still manages to be the lowest in more than a decade. The last remaining hurdle for the markets before clocking out for a de facto 4 day weekend (Friday is technically a half day, but...) will be this afternoon's Fed Minutes. As a reminder, this is only a more detailed account of the Fed meeting that took place 3 weeks ago--NOT a new policy announcement.Source: Mortgage News Daily | 23 Nov 2022 | 4:04 pm
Due Diligence, Compliance, Automation, Broker Communication Tools; Conforming Conventional Changes
Let me save you a web search tomorrow: 1-800-butterball. A web search turned up a misconception: It appears that robber Willie Horton, when he was asked why he robbed banks, never said, "That's where the money is." But banks are where the money is, and it is certainly catchy. You don’t think someone is making money off your money sitting in that bank? Another web search shows that the 1-year CD national average is 0.43 percent. The current 1-year risk-free Treasury bill is yielding 4.75 percent. How can you get around that spread where the bank earns 4.75 percent for a year but pays you less than .5 percent? Tip of the day: Go to https://www.treasurydirect.gov/ and see the yields of what you can buy directly from the government and the minimums required. I don’t recall anyone predicting 1-year rates would be near or at 5 percent by year end (or per loan costs would be over $11,000 per loan). Still, there’s a lot of planning going on for 2023 and a good portion of that is based on mortgage rates. I am reminded of this maxim from Lao Tzu: If you are depressed, you are living in the past. If you are anxious, you are living in the future. If you are at peace, you are living in the present. (Today’s podcast is available here and this week’s is sponsored by Richey May, a recognized leader in providing specialized advisory, audit, tax, technology, and other services in the mortgage industry and in banking. Today’s episode features an interview with Attorney Robert Maddox on how the mortgage industry learned from the 2008 financial crisis and some reasons it is better positioned in the current environment.)Source: Mortgage News Daily | 23 Nov 2022 | 2:30 pm
Rates, Mortgage App Volume Improve Heading into Holiday Season
Mortgage application volume increased for the second consecutive week as interest rates continued to decline. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of that volume, was 2.2 percent higher during the week ending November 18 than the prior week on a seasonally adjusted basis and up 10 percent before adjustment. MBA had adjusted its data for the week ended November 11 to account for the Veterans’ Day holiday. The Refinance Index increased 2 percent from the previous week and was 86 percent lower than the same week one year ago. The refinance share of mortgage activity increased to 28.4 percent of total applications from 27.6 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index chalked up its third consecutive week of improvement, increasing by 3 percent. The unadjusted version gained 9 percent compared with the previous week and was 41 percent lower than the same week one year ago. [purchaseappschart] “The 30-year fixed-rate mortgage fell for the second week in a row to 6.67 percent and is now down almost 50 basis points from the recent peak of 7.16 percent one month ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “The decrease in mortgage rates should improve the purchasing power of prospective homebuyers, who have been largely sidelined as mortgage rates have more than doubled in the past year. As a result of the drop in mortgage rates, both purchase and refinance applications picked up slightly last week. However, refinance activity is still more than 80 percent below last year’s pace .”Source: Mortgage News Daily | 23 Nov 2022 | 1:21 pm
Drama and Excitement Remain on Vacation in The Mortgage Rate World
Rates are driven by bonds and mortgage rates are driven by mortgage-backed bonds. These bonds trade in the open market all day every day. Mortgage lenders set their rates based on the movement in those bonds. Thanksgiving week tends to sap a significant amount of participation from the bond market. It's not that things aren't moving. They just aren't moving like normal. Price movements can be more random and there can be more misdirection plays where it looks like things are heading quickly in one direction only for things to reverse moments later (and then again moments after that, and so on...). Lenders also know that an extended weekend lies ahead for the rate environment. Weekends always bring in some small amount of defensiveness (i.e. setting rates a bit higher than they otherwise might just in case something happens over the weekend). 4 day weekends suggest twice as much defensiveness. All that to say that the mortgage rate creation process is about as slow and quiet as it gets at any time of year apart from the end of December. It also means that mortgage rates may not always move in the direction implied by bonds. For instance, today's bond market movement suggested slightly lower rates. Instead, the average lender was slightly higher. Expect things to get back closer to normal next week, but for the market to continue to wait until December 13th and 14th for the biggest moves. That's when we get the next major inflation report and the Fed announcement, respectively.Source: Mortgage News Daily | 22 Nov 2022 | 8:35 pm
Light Participation Limits MBS Gains as Treasuries Shrug Off Weak Auction
Light Participation Limits MBS Gains as Treasuries Shrug Off Weak Auction Today's 7yr Treasury auction was one of the only actionable items on today's calendar. It came out much weaker than expected and, for a moment, it looked like bonds might care. 10 minutes later and buyers had steamrolled through the brief selling pressure ultimately carrying yields to new lows before the 3pm close. The gains reinforce the range-bound trading themes of the week with yesterday erring toward the weaker levels and today taking things back in the other direction. MBS didn't manage to make intraday gains at the pace suggested by Treasuries as ultra light liquidity led to a constant questioning of reality. More on that in today's video. Econ Data / Events 7yr Treasury Auction 3.89 vs 3.87 forecast Bid to cover lowest since Dec, 2021 Market Movement Recap 08:41 AM Modestly stronger overnight and not much volatility. 10yr down 4.7bps at 3.791. MBS up 10 ticks (.31). 11:44 AM Sideways to slightly stronger still. 10s near best levels, down 6.7bps at 3.773%. MBS still up 10 ticks (.31) 01:04 PM Losing some ground after weaker 7yr Treasury auction. MBS down a quick eighth of a point, but still up about a quarter point on the day. 10yr yield up a quick 1.5 bps to 3.769 but still down 7+ bps on the day. 02:25 PM Back at best levels of the day with 10yr down 9bps to 3.748 and MBS up 3/8ths of a point.Source: Mortgage News Daily | 22 Nov 2022 | 8:25 pm
Consolidation and Countdowns Continue
Welcome to the bond market on Thanksgiving week in a year with the fastest rate spike in 4 decades, driven by inflation. This year, it just so happens that Thanksgiving week falls between the two most important CPI reports in a generation. Actually, the true importance will be determined by the December 13th CPI release. If it sends the same message as the last installment, it all but confirms we won't see rates higher than October's in a long, LONG time. With stakes that high, 3 weeks to wait, nothing of note on the calendar, and "holiday light" trading conditions, what can this week possibly be other than another moment in the countdown to bigger news? As such, a consolidation inside last week's range is as good a baseline as any, and that's exactly what we're seeing so far. Here's an updated version of yesterday morning's chart. Incidentally, today's trading range is perfectly contained by yesterday's trading range so far. Even if that ceases to be the case, it remains likely that this week's range will stay inside last week's range. Bottom line: bonds are consolidating sideways as they wait. Today's only remotely relevant calendar event is the 7yr Treasury auction at 1pm and even that's a stretch. There are also a few scheduled Fed speakers (Mester at 11am and Bullard/George at 2:45pm). We've heard from both of them within the past few business days, and it's hard to imagine a meaningful change in their messaging since then. Really the only wild card here would be a dovish correction from Bullard as the market had a very hawkish takeaway from his comments last week.Source: Mortgage News Daily | 22 Nov 2022 | 3:38 pm
