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

Jobless Claims 

224k vs 215k f’cast, 213k prev

Continued Claims

1871k vs 1910k f’cast, 1896k prev

At first glance, the 224k figure in jobless claims may seem like a moderately positive thing for bonds, but our ongoing chart of non-seasonally adjusted data shows that it’s a bit misleading.  This was actually the lowest claims reading on a non-adjusted basis than any of the other years in our comparison.

In other words, zero signs of labor market weakness in this particular data and thus no surprise to see bonds moving back up a bit.

The development marks another step in eNote adoption at government housing agencies following an announcement allowing commingled Ginnie Mae securitized pools earlier this year.

The Federal Reserve chair is not concerned about President-elect Trump nominating his successor well in advance of the end of his term in 2026, saying he is “confident” he will have a productive relationship with the next Treasury Secretary.

Paul Atkins, a noted critic of the Consumer Financial Protection Bureau, will join the Financial Stability Oversight Council, where he will play a role in shaping housing policy.

Mortgage trade groups have vowed to reintroduce the trigger leads bill next year.

Rep. French Hill, R-Ark. — one of the leading contenders to chair the House Financial Services Committee next year — focused on ‘debanking’ of crypto and other companies in his questions to the witnesses.

Mortgage lenders generally try to avoid setting rates more than once per day, but they will make changes if the underlying bond market is moving enough.  Mortgage Backed Securities (MBS) are the bonds that directly dictate mortgage rate movement.  When they’re stronger/higher, it implies downward pressure on rates and vice versa. MBS started the day in weaker territory, which is why the average lender started the day by offering just slightly higher rates compared to yesterday’s latest levels.  But MBS improved with the rest of the bond market after the morning’s economic data was released. When MBS improved enough, many lenders revised their rates slightly lower than yesterday’s latest levels. Technically, the average lender is at the lowest levels in over a month, but there’s been very little change in the average since last Friday.  The following chart of MBS may help explain why.  Keep in mind that the higher the blue line is, the better it is for rates.  The red line shows the central tendency of the past few days of movement.  Bottom line, despite the ups and downs, MBS have been reasonably flat this week.

No Whammies From Powell as Rates Rally on ISM Data

Bonds came away from this morning’s economic data with a tailwind that helped turn losses into gains.  The ISM Services PMI was the biggest contributor.  In addition to headline PMI being much weaker than expected, the employment index was also lower than last month, and the price index was unchanged. The only thing bonds had left to fear on the day was Powell’s afternoon Q&A, but there were no surprises and, thus, no reaction in rates.  Lenders were free to reprice for the better if they hadn’t done so before Powell.  Despite the gains, trading levels continue hitting the same resistance marked by 10yr Treasury yields just under 4.20%.

Econ Data / Events

ADP Employment

146k vs 150k f’cast, 233k prev

S&P Services PMI

56.1 vs 57.0 f’cast, 55.0 prev

ISM Services

52.1  vs 55.5 f’cast, 56.0 prev

Market Movement Recap

08:23 AM Moderately weaker overnight and little-changed after ADP data. MBS down 6 ticks (.19) and 10yr up 5bps at 4.273

10:03 AM MBS up to “unchanged” after the ISM data.  10yr up 1.6bps at 4.24.  MBS outperforming due to strength in the short end of the yield curve (i.e. 2yr yields are down 0.8bps on the day).

12:12 PM stronger still… MBS up an eighth and 10yr down 2.8bps at 4.196

03:02 PM Steady near best levels.  MBS up 5 ticks (.16) and 10yr down 4.1bps at 4.183