A “No Reaction” Sort of Day

Granted, there were no big ticket economic reports on tap for Monday, but there were several events that had at least some small chance to inspire some momentum. These included the 2 and 5 year Treasury auctions (both earlier in the week than normal due to month-end falling on a Thursday) and Treasury borrowing estimates for fiscal Q4 (Jul-Sep). The latter is part 1 of 2.  The 2nd part arrives on Wednesday afternoon with the full breakdown of new auction amounts. Today’s release provided an updated total amount.  After filtering out the noise, and giving credit for undershooting borrowing needs last quarter, borrowing estimates only increased $4bln for Q3 and Q4–not enough to stress out the bond market today. Bottom line: no discernible reaction to the auctions or the Treasury news.  On to econ data now, starting with Tuesday’s Job Openings at 10am ET.

Market Movement Recap

10:17 AM Sideways to slightly weaker overnight. MBS down 2 ticks (.06) and 10yr up 1.6bps at 4.404

11:35 AM No major reaction to 2yr auction, nor would we expect one.  MBS down 3 ticks (.09) and 10yr up 2.6bps at 4.415

01:43 PM No major reaction to 5yr auction despite much weaker results. MBS down 2 ticks (.06) and 10yr up 1.9bps at 4.408

03:42 PM No reaction to Treasury borrowing estimates. MBS down 2 ticks (.06) and 10yr up 2.5bps at 4.413

Given that a bilateral trade deal between the U.S. and EU was announced over the weekend, markets haven’t moved much at all in response. 10yr yields were briefly lower overnight and are now inconsequentially higher in early domestic trading.  Perhaps the uncertainty surrounding U.S./China negotiations is keeping traders cautious. On a less speculative note, while Monday doesn’t offer any big ticket econ data, there are two big Treasury auctions (2yr and 5yr). Not only is this a day earlier than normal, but it’s also a double whammy. Treasury notes/bonds usually get their day, but this week’s schedule is accelerated due to month-end falling on a Thursday.  In addition to month-end (a trading motivation in its own right) and Treasury auctions, there is a slew of relevant econ data starting tomorrow as well as a Fed announcement on Wednesday.
Without any meaningful market movement to discuss so far this week, let’s take a look at the big (and bigger) picture.  With the exception of summer 2024 and the subsequent rebound, not much has happened for rates since hitting the ceiling in late 2023.  Since then, once could easily argue there’s been general consolidation around 10yr yields just under 4.5%.  

Another manifestation of that same consolidation has been especially convergent on the midpoint since the late 2024 lows, with only one brief breakout on tariff announcement week.

What does this all mean? The market can’t see a compelling reason to trade 10yr yields up to 5%+, nor can it make any immediate case to break below 4.0% (and 4.5% is in the middle).  Much remains to be learned regarding the final impact of yet-to-be-finalized trade policies as well as the state of Treasury issuance–perhaps the more critical wild card when it comes to the bond market’s ability to rally like it used to.

“Since it started raining, all my husband has done is look sadly through the window. If it gets any worse, I’ll have to let him in.” (My son Robbie finds himself today in Hudson, Wisconsin, where there is indeed a chance of rain in 90 degree heat.) At what point does “extreme” weather become “commonplace,” and the public immune? The roller coaster of weather within the nation continues, just ask the rain-drenched East Coast, now roasting, sunbaked West, and flood-impacted Texas, all impacting lenders and servicers. The same with real estate values. Places like Florida, Phoenix, and Las Vegas are subject to violent swings in supply and demand, and price roller coasters, impacting LTVs. Unfortunately for homeowners in Las Vegas, it appears that they’re in a downdraft. Meanwhile, investors are snapping up a growing share of U.S. homes, including in Las Vegas, as traditional buyers struggle to afford one. (Today’s podcast can be found here and this week’s are sponsored by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite’s three core products – nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics – unite the people, systems, and stages of the mortgage process. Hear an interview with American Bankers Association’s Rod Alba on disparate impact and how we can get to a place of better regulation from Washington D.C.) Products, Services, and Software for Lenders and Brokers Simplify your operations and grow your business effortlessly with Encompass® by ICE Mortgage Technology®. Designed to connect and accelerate every stage of the lending process, Encompass allows mortgage lenders to streamline workflows and save valuable time on every loan. Click here to learn how GMFS Mortgage leverages the platform to help her team boost productivity and scale with confidence.

Numbers on use and performance point to potential for nonpublic insurers to take on a greater role but also suggest there are limits to it, Fitch Ratings found.

The agency has a proposed repeal in place, getting ready to be made public on July 28, which would rescind another Biden-era fair housing policy.

Given FHFA Director Bill Pulte’s history of making regulatory pronouncements via X, some theorize the release of Fannie Mae and Freddie Mac could occur in the same way.

The Community Investment and Prosperity Act would increase the statutory cap for bank investment into community development projects, unlocking “billions in capital” that can be directed to affordable housing.

Mortgage profits improved on both a quarterly and annual basis, but leaders said low housing affordability and industry competition remain obstacles to growth.

Bonds were initially stronger, then weaker in the overnight session.  There was a bit of additional selling in the first hour, but none of it corresponded with the 8:30am Durable Goods data. Notably, the data was much weaker than expected.  This helps reinforce our lack of interest in this particular report as a potential market mover. Bigger volume followed a series of Trump comments just after 9am ET. Trump said he’s meeting with UK prime minister tonight, he doesn’t ever want a weaker dollar (incidentally, this is at odds with wanting rate cuts), he got the impression that Powell might be ready to lower rates, Powell is a very good man, most trade deals will be done by August 1, and that there’s a 50/50 chance of a trade deal with the EU.  Your guess is as good as ours as to which of those accounted for the volume spike and bond reversal, but the EU comment lined up the best.  Either way, movement has been too small to really care.

It’s no great secret that the outgoing week didn’t offer much in terms of hotly anticipated events with the power to make or break momentum in the rate market.  But as it happened, there was ultimately no impact whatsoever by the time Friday afternoon rolled around.  Actually, rates were already ‘unchanged’ on the week as of yesterday afternoon.  Friday just happened to be unchanged as well. In terms of the bond market movement underlying the mortgage rate stability, we got some help from headlines regarding the improvement in relations between the Trump admin and Fed Chair Powell.  After touring the Fed’s construction site, the President said these sorts of cost overruns happen and he doesn’t want to put them in the category of “grounds for removal,” nor is there any pressure for Powell to resign. In general, the bond/rate market has done better during the moments where it looks like Powell’s job is safer.  Conversely, longer term bonds/rates have done worse when faced with the prospect of a Fed Chair replacement that would lower short term rates more aggressively (seeming paradox, but actually quite logical to bond traders).  For every degree to which the present week was calm and uneventful for rates, next week brings the heat.  There are big ticket events on every single day and the biggest of tickets in the form of Friday’s jobs report.  As always “potential” volatility doesn’t guarantee a big move in either direction.  All we know is that odds are higher for big moves–especially after Friday’s data.