As of last week, rates were showing some signs of resilience, but they had to wait for the true test from this week’s jobs report. Spoiler alert: they passed the test. It wasn’t that the headline job count was particularly low, but it wasn’t strong enough to argue against the fact that the labor market has cooled off compared to the first half of the year, or that 2024 is much cooler than 2023. The simplest way to visualize the cooling is via this chart of the unemployment rate. It would be fair to point out that 4.2+ is still a historically low unemployment rate, but just as fair to point out that the unemployment rate tends to move with a sort of glacial momentum that rarely changes course abruptly. This cooling is one of the reasons the Fed decided to begin cutting rates in September. As we discussed in the weeks leading up to that, the market is able to anticipate those decisions, thus pushing rates lower before the Fed actually pulls the trigger. The same thing is arguably happening this week, especially after today’s jobs report. 10yr Treasury yields serve as a benchmark for mortgage rates, indirectly. They can help us understand how rate sentiment reacts to data. Here’s how they reacted today: In addition to the jobs report, Wednesday’s ISM Services index was also rate-friendly (i.e. it came out weaker than expected). Mortgage rates don’t always track perfectly with Treasury yields, but they’ve also been moving lower–especially after the jobs report. The average lender is at the best levels in a little over a month and a half.
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Solid Conclusion to a Solid Week. Has The Tide Turned?
Solid Conclusion to a Solid Week. Has The Tide Turned?
After Thanksgiving week introduced a potential breakout from the recent uptrend in yields, this week kept hope alive. It also kept us in suspense until today due to the jobs report. Despite a decent facade (227k vs 200k f’cast), the closer one examined today’s jobs data, the weaker it began to look. Markets agreed without much hesitation. It wasn’t as if the data was downbeat enough for a massive rally, but we’d argue that today’s modest rally is still a great victory on a week where yields were already pushing the lowest levels since October 21st. Next week will be important in determining the endurance of this rally with Treasury auctions and inflation data. The following week will set the tone for the end of the year with the Fed’s dot plot and rate announcement.
Econ Data / Events
Nonfarm Payrolls
227k vs 200k f’cast, 36k prev
Unemployment Rates
4.2 vs 4.2 f’cast, 4.1 prev
Participation Rate
62.5 vs 62.7 f’cast, 62.6 prev
Consumer Sentiment
74 vs 73 f’cast
1yr inflation expectations
2.9 vs 2.6 prev
Market Movement Recap
08:54 AM Fairly flat overnight and modestly stronger after jobs report. MBS up just over an eighth and 10yr down 1.8bps at 4.153
10:03 AM MBS now up a quarter point and 10yr down 3bps at 4.14
11:10 AM off the highs. MBS now up only an eighth on the day and 10yr up .4bps at 4.175
04:40 PM Heading out near the day’s best levels. MBS up a quarter point and 10yr down 2.3bps at 4.148
Why Are Bonds Rallying Despite a Seemingly Decent Jobs Report?
We all know that today’s jobs report is the most important economic data on an given month. We also know that a higher payroll count tends to be bad for bonds/rates. So why are bonds rallying despite payrolls coming in at 227k versus a 200k forecast? First off, in the realm of nonfarm payrolls (NFP), this is a small enough beat to be considered “as expected.”
Perhaps more importantly, traders assumed that last month’s incredibly small 12k NFP would be revised much higher. Instead, it was only revised up to 36k. Finally, the combination of the labor force participation rate and unemployment rate suggests the actual level of unemployment was 0.2% higher than last time.
Even without the additional context from the labor force participation rate, the unemployment rate trend seems clear.
The counterpoint is that 4.2+ is still historically low, but this isn’t a data series that tends to reverse course so quickly once a new trend gets underway.
These mitigating factors are more than enough for traders to look past the modest beat in the headline NFP number.
The counterpoint to this morning’s rally is that it’s just not that big as far as NFP-driven rallies go–not even as big as Wednesday’s ISM/Powell combo.
The reaction has been more compelling with respect to Fed rate cut expectations, helping quite a bit to increase the odds of a December cut. Notice the lack of a reaction in Fed Funds Futures to Wednesday’s data in the chart below. This is just an interesting observation about what matters to the Fed rate outlook and what doesn’t.
CFPB disburses $1.8 billion to victims of credit-repair scheme
The Consumer Financial Protection Bureau is giving the funds to more than 4.3 million consumers harmed by a defunct credit-repair conglomerate, the largest-ever distribution from the bureau’s victim-relief fund.
‘Everything is on the table’: TD seeks ways to steady the ship
The Toronto-based bank suspended its medium-term growth targets and announced a full-scale review of its strategies following historic anti-money-laundering failures.
The bank regulatory items that are open for public comment
These regulatory announcements in the banking industry are currently open to public comment.
Expecting a ‘Trump bump’ in housing? Not so fast
The influence of expected policy changes from President-elect Trump will have on real estate next year could be mitigated by economic factors, Realtor.com said.
Mortgage rate drop moves purchase market, but for how long?
The 30-year fixed rate mortgage is at its lowest point since the end of October, but it is still relatively elevated at near 7%, Freddie Mac reported.
Calm Week So Far, But All Bets Are Off After Jobs Report
Calm Week So Far, But All Bets Are Off After Jobs Report
Bonds were slightly weaker overnight and did just a bit more selling after the Jobless Claims data, but the losses were erased by the early afternoon. Even then, they were never that big in the first place. The muted volatility fit nicely in a week where the tone has been decidedly calm and the range has been reliably narrow. It’s also a perfect set up for the report that always reserves the right to rock the boat (Friday morning’s jobs report). Expectations are for a fairly middle-of-the-road 200k print for nonfarm payrolls and a slight uptick in the unemployment rate.
Econ Data / Events
Jobless Claims
224k vs 215k f’cast, 213k prev
Continued Claims
1871k vs 1910k f’cast, 1896k prev
Market Movement Recap
08:46 AM Modestly weaker overnight and slight additional losses after solid jobless claims data. MBS down 5 ticks (.16) and 10yr up 2.6bps at 4.214.
02:13 PM Bouncing back a bit into the PM hours. MBS down only 1 tick (.03) and 10yr down half a bp at 4.183
03:29 PM Best levels of the day with MBS now unchanged and 10yr down 1.5bps at 4.173
Hedging, Wholesale, Correspondent, LO Survey; Top LO interview; STRATMOR and Appraisal Underwriting Study
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