While mortgage employment is lower year-over-year, the mixed bag of data makes it more likely that borrowing rates will remain higher for longer.

With President Donald Trump’s tariff threats turning into reality and the Federal Reserve likely to hold off on cutting rates, credit investors are continuing to bet on shorter-duration bonds.

Minimal Selling Leaves Focus on CPI

The first order of business this morning was to reconcile the weaker NFP reading with the seemingly illogical bond market sell-off.  That was easy enough to do by the time we considered the solid drop in unemployment along with the big revisions to the past 2 months of payrolls. It was all the more palatable due to the modest size of the sell-off (especially modest as far as jobs report days are concerned). Thanks to the rally earlier in the week, bonds are still set to end the week at slightly stronger levels.  Bottom line, volatility is minimal. Next week’s CPI is the only other report that can hold a candle to NFP when it comes to rocking the bond market’s boat. 

Econ Data / Events

Nonfarm Payrolls

143k vs 170k f’cast, 256k prev, revised to 273k

Unemployment Rate

4.0 vs 4.1 f’cast, 4.1 prev

Participation Rate

62.6 vs 62.5 prev

Consumer Sentiment

67.8 vs 71.1 f’cast

1yr inflation expectations

4.3 vs 3.3 previously
big jump on tariff fears

Market Movement Recap

08:48 AM First move after NFP is weaker.  MBS down 5 ticks (.16) and 10yr up 3.7bps at 4.478

10:57 AM off the weakest levels after Trump’s reciprocal tariff headlines.  MBS still down a quarter point and 10yr up 4.8bps at 4.489

01:05 PM Classic PM sideways fizzle in progress.  MBS still down a quarter point and 10yr drifting sideways just under 4.50.

Friday brought the release of the big jobs report which is historically more likely than any other monthly economic report to cause the biggest pops or drops. Today’s installment can be filed under the “pop” category, but it was so quiet, you might not even hear it. In fact, the drop in rates seen earlier in the week ended up being slightly bigger. It resulted in a 0.06% move lower in the average lender’s top tier 30yr fixed rate while today’s jobs report only caused a 0.03% move in the other direction.  The net effect is an average 30yr fixed rate that remains just barely over 7%.  Despite the relatively small movement today, it’s plain to see that rates continue to favor reacting to economic data rather than news headlines. With that in mind, next week brings the only other economic report capable of competing with the big jobs report for volatility potential: the Consumer Price Index (CPI). CPI is the first of the two major inflation indices released by the government. Inflation is being watched very closely right now. The Fed has repeatedly stated it is comfortable with where the labor market is at, but needs to see more progress on inflation to resume rate cuts.  Mortgage rates have a complicated relationship with the Fed Funds Rate over shorter time horizons, but they’d definitely move lower if inflation surprised to the downside next Wednesday.

“The San Diego Padres visited an orphanage in Mexico. ‘It’s really sad to see their faces with no hope,’ said Juan, age 9.” In other San Diego news, Optimal Blue wrapped up its Industry Summit this week. As with many events, the talk in the hallways was nearly as important as the actual sessions. The California fires were a topic, and this month’s piece in STRATMOR is titled, “Natural Disasters and Economic Resilience.” There were certainly conversations about data protection, state licensing flexibility and remote work, and remote online notarization. OB launched many new products, interestingly, at no incremental cost to their clients! Skateboarder Tony Hawk (age 56) was even there. Also of interest, of course, is the general business climate. Many have seen locks pick up somewhat in recent weeks. According to Curinos’ new proprietary application index, refinances increased 15 percent week over week and decreased 39% in January; the purchase index increased 15% week over week and decreased 33% for January as a whole. January 2025 funded mortgage volume increased 27% YoY and decreased 21% MoM. Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. (Today’s podcast can be found here and this week’s is sponsored by Optimal Blue. OB bridges the primary and secondary mortgage markets to deliver the industry’s only end-to-end capital markets platform, helping lenders maximize profitability and operate efficiently so they can help American borrowers achieve the dream of homeownership. Hear an interview with the MBA’s COO Marcia Davies on how the MBA and mPower are helping the industry stay on track and lead the industry.)

As always, the jobs report matters. Today, we’re seeing an obvious reaction to a fairly minimal miss (143k vs 170k f’cast in the headline job count). If that was the only data point in the report, bonds would likely be rallying. But after considering the other data, traders have been more inclined to sell. A full and detailed assessment of this other data would be both mind-numbing and voluminous. Here it is in a nutshell. Revisions to the past two months more than offset this month’s miss. Note the 3 month moving average of payrolls moving higher:

Bigger picture annual revisions took away fewer jobs than expected, and actually added jobs to the past few months.

The unemployment rate ticked down even though more people entered the workforce.

The prime working age employment to population ratio has continued to erase the late 2024 slide that had the Fed concerned enough to cut 50bps in September.  Bottom line: 143k pay not be a huge payroll number, but almost every other part of the report fails to raise any red flags that might contribute to higher rate cut probabilities.

On a GAAP basis, Intercontinental Exchange’s mortgage business has lost money for nine quarters, but a metric that includes Black Knight makes it profitable.

Delinquencies are higher in one sector but overall pretax operating income is at a multi-decade high and adding to profit from originations.

The mortgage arm of Rithm Capital saw profits surge in the fourth quarter, as the parent company looks to scale up before making any moves to separate.

The 17.2% of mortgage borrowers nationwide with interest rates equal to, or greater than 6%, is the largest share since 2016, according to Redfin.