Incidental Weakness or a New Trend?

The most interesting thing that happened in the bond market today involved trading levels breaking to just slightly worse levels than last week.  Looking back to the beginning of the month, this is starting to look like a trend toward progressively weaker levels. But is it? From a purely technical standpoint, that case could be made, but considering volume, the time of year, and the econ calendar, it’s just as easily chalked up to incidental movement in a narrow range.  In fact, all of August’s trading continues taking place well inside the range set by the post-jobs report rally.  

Econ Data / Events

Export prices mm (Jul)

0.1% vs 0.1% f’cast, prev 0.5%

Import prices mm (Jul)

0.4% vs 0.0% f’cast, prev -0.1%

NY Fed Manufacturing (Aug)

11.90 vs 0.0 f’cast, prev 5.50

Retail Sales (Jul)

0.5% vs 0.5% f’cast, prev 0.6%

Retail Sales (ex-autos) (Jul)

0.3% vs 0.3% f’cast, prev 0.8%

Retail Sales Control Group MoM (Jul)

0.5% vs 0.4% f’cast, prev 0.8%

Market Movement Recap

09:25 AM Moderately stronger overnight, but selling off since 8:20am CME open.  MBS unchanged and 10yr down less than half a bp at 4.313

10:57 AM Weakest levels.  MBS down an eighth and 10yr up 2bps at 4.337

02:57 PM Sideways just off weakest levels.  MBS down 3 ticks (.09) and 10yr up 2.2bps at 4.34

As I type this, I’m at the doctor’s office, and some guy a few seats over is booing all the names being called that aren’t his. Do you boo the products that you don’t have? Non-Agency lending, much of it in the form of non-QM loans, has been moving steadily higher at the expense of Freddie Mac’s and Fannie Mae’s market share. Are rates helping? I went back and looked at January 2 of this year. The 2-year Treasury was yielding 4.20 percent, and the 10-year was yielding 4.52, a difference of 32 basis points. Today we have them at 3.74 and 4.29, a difference of 55 basis points, so this difference, one measure of the steepness of the yield curve, has doubled. It is steeper. How’s your adjustable-rate product offering? ARMs now account for nearly 10 percent of applications, per the MBA. Our biz could certainly use a little boost: According to Curinos’ proprietary application index, refinances decreased 20 percent in July; the purchase index decreased 28 percent for July as a whole. July 2025 funded mortgage volume increased 2 percent YoY and decreased 2 percent MoM. (Curinos sources a statistically significant data set directly from lenders to produce these benchmark figures. We drill into this data further here.) (Today’s podcast can be found here and this week’s is sponsored by FirstClose. FirstClose provides fintech solutions to HELOC and mortgage lenders nationwide, increases profitability and reduces costs for mortgage lenders through systems and relationships that enable lenders to assist borrowers more effectively and ultimately shorten closing times. Hear an interview with NFTYDoor’s Mark Schacknies on the reshaping of mortgage lending: from lightning-fast HELOC approvals and real-time AI underwriting to a human-plus-tech model that prioritizes loan officers over direct-to-consumer disruption.)

Summertime trading conditions tend to amplify trading motivations that might otherwise get lost in the shuffle. This morning, it’s been the opening bells (8:20am CME and 9:30am NYSE) that have resulted in distinct phases of selling pressure.  That weakness offsets moderate overnight strength and bonds are now moving into weaker territory.  With NAHB builder confidence being the only offering on the econ calendar, there was never a chance that today’s movement would be determined by econ data.  

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Weaker Conclusion But No Major Big Picture Implications

Despite much stronger revisions and a modestly stronger core retail sales number this morning, bonds managed to hold mostly sideways until the afternoon hours.  At that point, lighter summertime Friday afternoon trading gave way to a mini snowball that took yields to their highest levels of the week.  Fed Funds futures suggested some thought behind the selling with the highest implied September rate since just before Tuesday’s CPI. All that having been said, bonds could simply be hedging their optimism ahead of next week’s Jackson Hole speech from Fed Chair Powell. In the bigger picture, little has changed since last Friday’s jobs report.

Econ Data / Events

Export prices mm (Jul)

0.1% vs 0.1% f’cast, prev 0.5%

Import prices mm (Jul)

0.4% vs 0.0% f’cast, prev -0.1%

NY Fed Manufacturing (Aug)

11.90 vs 0.0 f’cast, prev 5.50

Retail Sales (Jul)

0.5% vs 0.5% f’cast, prev 0.6%

Retail Sales (ex-autos) (Jul)

0.3% vs 0.3% f’cast, prev 0.8%

Retail Sales Control Group MoM (Jul)

0.5% vs 0.4% f’cast, prev 0.8%

Market Movement Recap

09:03 AM Mixed reaction to econ data, but broadly sideways.  10yr down 0.2bps at 4.284 and MBS up 1 tick (.03).

12:22 PM 10yr yields are now up 3.5bps on the day at 4.321. MBS are down 3 ticks (.09) on the day and just over an eighth from highs

12:51 PM just a bit weaker now.  MBS down almost an eighth on the day and more than an eighth from early rate sheets.  10yr up 4.1bps at 4.327

03:25 PM Off the very weakest levels heading into the close with MBS down an eighth and 10yr yields up 3.9bps at 4.325

Friday morning’s highlight is the Retail Sales report which came in at a respectable 0.5 vs 0.5 headline. Core retail sales (excluding autos/gas/building materials) was even more respectable as it not only beat the forecast by 0.1, but was also revised 0.3 higher last month. If the bond market were so inclined, this data provides plenty of cover for a little sell-off.  But while there’s been a modicum of weakness in response, it’s effectively an unchanged day so far–especially for MBS.

10yr yields are about 1bp higher, but still in the post-NFP range.