Despite a stark absence of any truly inspiring events, interest rates have managed to put in two fairly serious days of movement. In today’s case specifically, there was an obvious intraday surge in the underlying bond market. While that surge wasn’t readily attributable to any data or news headline, it prompted many mortgage lenders to reissue lower rates in the afternoon. As conventional 30yr fixed rates move down from the 6.3’s toward the 6.1’s, this is a zone that can see larger than normal movement for reasons laid out back in early September (A Quick Note on Why Rates Seem to Drop More Quickly as They Approach Certain Thresholds). We’re beginning to see some of that slippery slope behavior in our rate index over the past few days as 6.125% comes closer to be being a more widespread top-tier rate quote. As ever, the real question is whether we continue heading in that direction or if we’re due a bounce. As ever, there’s no way to know ahead of time.  The level of improvement seen over the past week is already arguably surprising.

Seriously… No One Seems to Know

Today’s most prominent feature was a large, rapid move in Fed Funds Futures and other short-term rate metrics.  Longer term rates benefited as well, but short term rates clearly led the rally. The issue is that there was no obvious catalyst.  Some reports suggested “regional bank fears,” but it’s hard to document that with the timing of market movement. Other considerations may include comments from Fed’s Waller, but those were over 2 hours before the bond rally.  To be sure, regional banks had a terrible day, but there too, the biggest volume and volatility transpired about 2 hours before the move in Fed Funds Futures. Whatever the truest, most nitty-gritty catalyst, we’ll take it! 

Econ Data / Events

NY Fed Manufacturing 

10.7 vs -1.0 f’cast, -8.7 prev

Market Movement Recap

08:59 AM Slightly stronger overnight and limited reaction to Philly Fed.  MBS up 1 tick (.03) and 10yr down 1.3bps at 4.016

09:11 AM Quick reversal after 10s hit 4.0%.  Now up half a bp to 4.034.  MBS down a quick 3 ticks (.09) and just over an eighth from AM highs.

11:43 AM Bouncing back a bit now.  MBS unchanged and 10yr down nearly 1bp at 4.019

01:12 PM Big mystery rally from 12:15 to 12:45.  10yr down 3.8bps at 3.991.  MBS up and eighth.

03:53 PM Near best levels. MBS up 6 ticks (.19) and 10yr down 5.6bps at 3.973

There were quite a few economic reports that would have been released this morning were it not for the gov shutdown.  OK, well only 3 notable absences, but there would have been a 3 week backlog of jobless claims in addition to typically spicier Retail Sales and PPI data. As it stands, Philly Fed was the only scheduled data released at 8:30am and it had no impact.  Instead, it was a glut of block trades (read all about them here) just after 9am that sent 10yr yields lurching higher.  With that, yields have rejected the 4.0% floor yet again and are now up modestly on the day.  MBS are following suit, down just under an eighth of a point. 

The next chair is likely to be named to a 14-year Fed governor term which opens up in early 2026.

America’s second-largest bank revised its net interest income target upward after what analysts called a “clean” third quarter.

More than 4,000 federal workers received notices Friday that their last day will be Dec. 9.

The head of the government-sponsored enterprises’ oversight agency also asked existing investors to review risk factors as officials eye a new public offering.

The megalender is accusing a nearby brokerage of skirting labor laws and avoiding significant overhead costs in misclassifying hundreds of employees.

Fairly Flat At Strongest Levels in Weeks

10yr yields ended the day a mere 0.1bp higher than yesterday (4.029 vs 4.028).  Call it “unchanged,” and no one will argue. In this case, an unchanged result means we’re holding at the best levels since Sep 17. MBS managed to add 2bps to yesterday’s close, and are also at 4 week highs. Volume was much lower than yesterday, but still elevated compared to most of last week. That’s interesting considering the narrow range and light volatility. As far as the modest mid-day bump in Treasury yields, there were no obvious triggers apart from arcane speculation surrounding liquidity conditions and funding market stress with traders pointing to a big take up in the Fed’s standing repo facility. This doesn’t really hold water due to the timing of the repo announcement. The only other thought is that we’ve often noted enigmatic volatility on tax deadline and adjacent days.  Either way, it was too small a move to merit any further investigation.

Econ Data / Events

NY Fed Manufacturing 

10.7 vs -1.0 f’cast, -8.7 prev

Market Movement Recap

09:54 AM Slightly stronger overnight and holding gains so far.  MBS up 3 ticks (.09) and 10yr down 2.5bps at 4.003

12:05 PM MBS now down 1 tick (.03) on the day and 5 ticks (.16) from the highs.  10yr up just under 1bp at 4.037

02:49 PM fairly flat after mid-day selling.  MBS unchanged and 10yr up 1.6bps at 4.045

Stocks have made a bit of a round trip since last Friday when Trump’s tariff comments sparked a big sell-off.  Bonds benefited from that at the time.  So far this week, stocks have staged a solid comeback–especially today as upbeat earnings and Fed rate cut expectations provide support.  Bonds continue to rally on multiple Fed comments that focus on a weaker labor market underpin an increasingly clear rate cut picture.  Many market participants read yesterday’s Powell comments as endorsing another cut in October.  Bonds mostly had this priced in, but the absence of bad news is good news–at least good enough for more modest gains this morning. That said, gains are tougher to justify from here with yields pushing the lower end of the range boundary.