In a speech outlining his priorities for the FDIC, Vice Chair Travis Hill stressed the need for a more flexible regulatory approach, addressing capital requirements, digital assets, climate policy, and bank oversight, while emphasizing transparency and timely action.

Even though senior home values are still near the all-time high, other data shows fewer are turning to reverse mortgages to ease a potential financial crunch.

Mortgage rates were already at 6 month highs earlier this week so it didn’t take much of a push to send them up to new 7 month highs today. The push in question came from today’s hotly-anticipated jobs report. No other economic report has as much consistent potential to cause volatility for interest rates.  As such, when today’s job creation headline came in at much higher levels than expected, it was an easy decision for traders to push rates to higher levels. The average top tier 30yr fixed rate was closer to 7.125% yesterday. After today’s route, that rate is now almost perfectly centered on the 7.25% level (mortgage rates are typically offered in 0.125% increments). These are the highest levels since May 2024. From here, the pain could continue if next week’s data sings a similar tune. While not as consistent a market mover as the jobs report, Wednesday’s Consumer Price Index (CPI) is the only other economic report that’s in the same league. A particularly balmy inflation reading could easily push rates up another 0.125%–possibly more.  Conversely, a sharply lower inflation reading could be worth just as much of a recovery.

2024 has been one of those “it is what it is” sort of years for activity in the mortgage market.  There were signs of hope over the summer months as rates fell enough to make for a noticeable spike in refinance activity.  But with the rapid reversal starting in October, refi demand is right back in line with long term lows according to the Mortgage Bankers Association’s (MBA) refinancing index. It’s hard to see in the chart, but this week’s survey actually showed a modest increase over last week, the difference is inconsequential as both are effectively the lowest levels since late 2023. The purchase side of the market has been less eventful, but no less depressing. This application data was collected well before this week’s jobs report and subsequent rate spike.  As such, we wouldn’t expect any resilience in next week’s numbers.  On the brighter side, present levels are so repressed that we also wouldn’t expect much more of a contraction.

Sizeable, Straightforward Selling Spree

Today’s jobs report was much stronger than expected and there were no compelling counterpoints to give traders any second thoughts.  As such, traders proceeded logically by dumping bonds.  Trading levels hit the 3pm close very close to the levels seen immediately after the jobs report and there wasn’t much fanfare in between. All in all, a reaction that was as straightforward as it was unpleasant.

Econ Data / Events

Nonfarm Payrolls

256k vs 160k f’cast, 227k prev

Unemployment Rate

4.1 vs 4.2 f’cast, 4.2 prev

Market Movement Recap

08:47 AM big selling after data.  MBNS down half a point.  10yr up 8.9bps at 4.773

10:31 AM Decent recovery in Treasuries with 10yr yield now up only 4.8bps at 4.734.  MBS down 14 ticks (.19).

02:42 PM MBS as new lows, down nearly 5/8ths.  10yr up 8.1bps at 4.765

The morning trading is as straightforward as it is unpleasant.  Nonfarm payrolls crushed expectations (256k vs 160k f’cast) and the unemployment rate also improved (4.1 vs 4.2). While the Fed may have downplayed the role of the labor market in guiding the rate outlook at the last meeting, the jobs report will ALWAYS matter to the bond market.  If anything, the damage has been fairly limited relative to what it could have been, or even what it had been in the first few minutes after the data.  Nonetheless, yields have easily moved to their highest levels over a year.

The market has moved out to June for the next Fed rate cut expectation, and just barely.  Yesterday, there was only a 25% chance of no rate cut by June.  Today it’s 40.3%.  Current trading in Fed funds futures suggests only a 43.0% chance of a cut.

The 10am Consumer Sentiment data provided another hurdle for bonds, mainly due to the big jump in inflation expectations.  We’d take this with a grain of salt considering the many unknowns surrounding tariff implementation and impact.  Thankfully, it looks like bonds are doing to the same (i.e. not reading too much into it, despite a brief, initial reaction).

In Los Angeles County, with 4,058 square miles of land (more than Delaware and Rhode Island combined) at least ten people have died, and more than 10,000 structures have burned and hundreds of thousands of residents are under evacuation orders in what will be the costliest wildfire disaster in American history. Lenders and mortgage servicers doing business in California have implemented policies and procedures in dealing with borrowers, lending, inspections, and fundings, given FEMA’s response, disaster declaration, and financial assistance. Assistance and shelter reconstruction are what is needed, not finger pointing. But on X, Elon Musk suggested that the fires were spreading due to the city fire chief’s commitment to diversity, equity, and inclusion policies, and president-elect Trump is discussing policies and politics regarding water and smelt. I personally know several people impacted directly or through their families; help is needed, not blame. Of course, replacing or repairing existing housing stock doesn’t help new housing numbers, or inventory levels. Human lives, obviously, are irreplaceable. (Today’s podcast can be found here and this week’s is sponsored by CoreLogic. CoreLogic gives mortgage professionals the tools they need to establish long-term relationships with their clients, helping them keep future business in-house and transforming the way they do business. Hear an interview with attorney Brian Levy on the waning days of Director Rohit Chopra’s tenure in charge of the CFPB.)

Craig Phillips worked on early efforts to move the government-sponsored enterprises toward a conservatorship exit during the first Trump administration.

Mortgage lenders increased their offerings of adjustable-rate and cash-out refinance loans in December as rates rose, the Mortgage Bankers Association said.

Seen by many as a logical pick for the Federal Reserve’s next vice chair for supervision, Gov. Michelle Bowman wants the institution to focus on safety and soundness issues, tailoring and transparency.