Bonds managed a moderate rally in response to this morning’s inflation data.  While it has since been mostly erased, it was as strong of a showing as we could have possibly hoped for at the time, and one that speaks to the recent increase in underlying inflation anxiety.
The anxiety stemmed from the past 2 CPIs popping back near 0.3% (core, M/M) after averaging 0.13% in the 3 months before that.  Looked at another way, Core CPI increased every month starting in July, and that trend was finally defeated today. 
Without the shelter component, inflation is at or below the Fed’s 2% target (2.1% core and 1.3% overall). In early trading bonds moved back in line with yesterday morning’s levels–not a huge victory in the bigger picture, but a strong showing given the asymmetric risks.
The CPI reaction nearly garnered the same volume as the jobs report over the first 30 minutes of the reaction.

For those interested in more nuance, here are several charts from the CPI data. The first shows how goods and energy prices are contributing to deflation while housing and services continue accounting for almost all of the inflationary pressure.

The following chart focuses on housing inflation specifically.  It’s still elevated, and month-to-month readings can be volatile, but the broad, slow decline is the key reason that the Fed is confident in the eventual return to 2% (because, again, without housing, we’re already there).

The next chart shows actual rental rates mostly back to pre-pandemic levels and in a flatter trend compared to OER, which remains elevated.  That said, OER is also broadly trending lower.

The average home buyer spends almost $32,000 in home-buying expenses, a report by Clever Real Estate claims.

A steep mortgage servicing rights valuation change hurt earnings which included greater adjusted net income and total origination volume.

While the latest data indicates ongoing demand, changes in the share of locks by category show consumers trying to adapt to market conditions, according to a report from Optimal Blue.

Foreclosures were up month to month in October, while future indicators, such as mortgage delinquencies and trouble making all debt payments, came in higher as well.

The incoming administration has experience from its previous run, Bank of America’s chairman and CEO said. He also said he would not join it.

What would lenders do without telephones and phone calls? In 1947 area codes were created by AT&T. Metropolitan areas were given low numbers so that people would spend less time dialing them. Think New York, Chicago, San Francisco (and all of Central California), Dallas, and all of Southern California including Los Angeles, (212, 312, 415, 214, and 213, respectively). Philadelphia received 215, Detroit 313. Atlanta, originally given 404 with the rest of Georgia, has four area codes. Georgia has nine. Few people want to receive a phone call from the CFPB, but change may be afoot. Today’s Mortgage Pros 411 features the CFPB’s Mark McArdle. We’re nearing the time when LOs seem more open to taking calls from recruiters… How’s your policy regarding how long you pay an LO after they leave, or who owns the borrower’s data? They should be sound. An informal poll indicates that LOs are often paid for 30 days after they leave. Of course, the higher the origination costs are, the worse the pricing for borrowers, and secondary staffs can’t make up for everything. Today’s Capital Markets Wrap at 3PM ET, presented by Polly, will cover last week’s election volatility. (Today’s podcast can be found here. This week’s is sponsored by Floify. Floify is an easy-to-configure point-of-sale platform that allows each branch or loan officer to customize its look and feel to meet the needs of their lending team, homebuyers, and market. Today’s features an interview with Floify’s Jason Mapes on how new POS technology in the mortgage industry is providing both time and cost savings for originators and borrowers.)

Last Thursday and Friday offered some hope that the persistent move to higher rates was finally leveling off.  It wasn’t necessarily a rational hope, but if nothing else, it was “nice” to see the average 30yr fixed move back below 7%.  Even then, we cautioned against viewing the recovery as indicative of ongoing success.  Now today, we see why. Bonds (which dictate rates) have moved swiftly back into the weaker territory that precipitated the move over 7% in mortgage rates.  As such, it’s no surprise to see the average lender easily back into the 7s.  For context, rates were as high as 7.5% in April and 8.0% at their long-term peak roughly a year ago. As for motivations, the market continues to work through election-related volatility.  That involves a complex set of considerations.  Some of them have to do with actual expectations for changes in fiscal policy in the coming years. Some of the considerations are as simple as traders going through the process of exiting (and re-setting) trading positions heading into the election. Motivations aside, it continues to be the case that interest rates would need to see significant weakness in economic data and a stronger move toward lower inflation in order for any real progress.  Tomorrow morning brings the first of the week’s big data points in the form of the Consumer Price Index (CPI)–an inflation report with a solid track record of inspiring reactions in rates.  

Back to Regularly Scheduled Programming (Unfortunately)

Bonds sold off on Tuesday both during the domestic session and in the overnight hours leading up to it. Motivations are a matter of conjecture as there is not a conveniently obvious scapegoat.  That hasn’t stopped journalists, analysts, and traders from chiming in.  The resulting laundry list mostly includes political considerations ranging from specific revelations regarding cabinet appointees to generalizations about the market continuing to process fiscal implications. We’d certainly add a high likelihood of positional considerations with last Thu/Fri now looking very much like an opportunity to cover shorts (makes yields move lower)  and get neutral ahead of the 3-day weekend before getting yields back in line with post-election highs today. 

Market Movement Recap

08:41 AM Bonds move sharply weaker overnight and in early trading.  10yr up 8.4bps at 4.389 and MBS down 13 ticks (.41)

11:59 AM MBS are down 14 ticks (.44) on the day and just over an eighth of a point from the AM highs.  10yr yields are up 10.7bps at 4.413.

03:27 PM Weakest levels of the day for MBS, down nearly 5/8ths of a point.  10yr up 13bps at 4.437

In the run up to the election, we offered constant reminders that a 10bp move in Treasuries wasn’t really a big deal, and that such volatility could be expected well into November.  That’s the first way to view the overnight weakness.  In fact, it’s almost perfectly central to the prevailing trend, and the previous 3 trading sessions look like the more volatile reaction. 
Consider that there was a good amount of short covering (bond sellers becoming buyers to close their positions and book profits) after the election, and likely a push to get through it by Friday. That would leave today as a “back to business” day. 
The other way to view this morning’s selling is as an organic response to Trump cabinet appointees and the increased likelihood of GOP control of the House.  We maintain that such a thin margin of control is not quite as big of a deal as 10+ seat margin, but it’s worth a bit of bond weakness nonetheless. 
There are a few headlines circulating regarding European traders pricing in US inflation expectations and political outcomes.  That coincides with the most notable uptick in volume and volatility overnight.

In the bigger picture, yields are right in line with a linear regression (yellow line) going back to October 22nd (the day after the big mystery selling-spree that could only be tied to election speculation).  It’s also fairly central to the prevailing trend channel since the October jobs report (white lines).