Trying to Shake Off Overnight Weakness After Mixed Bag of Data

Bonds came into the domestic session at slightly weaker levels after losing ground gradually in the overnight session. They morning’s economic data was basically a wash.  Durable goods came in hot, but the report has been volatile surrounding fiscal policy implementation. Quarterly PCE was revised up, but that’s stale data (Q4, 2024). On the rate-friendly side, Jobless Claims were much higher than forecast, but still not out of line with trend levels from the past few years. Tomorrow’s monthly PCE data should be less prone to “yeah buts.” That said, keep in mind that some of the positive reaction potential has already been traded after the PPI data 2 weeks ago.  In other words, core PCE might need to be lower than expected to see a rate-friendly reaction (as opposed to merely hitting the 0.3% month-over-month forecast).

Econ Data / Events

GDP 

2.3 vs 2.3 f’cast
PCE Price Index revised up 0.2

Jobless Claims

242k vs 221k f’cast, 220k prev

Durable Goods

3.1 vs 2.0 f’cast, -1.8 prev

Core Durable Goods

0.8 vs 0.2 f’cast, 0.2 prev

Market Movement Recap

09:03 AM Slightly weaker before data, and mostly choppy/sideways after that.  MBS down roughly an eighth of a point and 10yr up 2.9bps at 4.288

02:54 PM Broadly sideways after a modest recovery.  MBS down 1 tick (.03) and 10yr up 2.5bps at 4.285

04:11 PM MBS down 2 ticks (.06) and 10yr up 1.4bps at 4.272

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As of yesterday afternoon, bonds could seemingly do no wrong this week.  Every opportunity for traders to circle the wagons and push back against the persistent rally was instead met with more rallying.  Now today, we’re finally seeing the first somewhat legitimate selling pressure since the middle of last week (emphasis on “somewhat”). AM data created some indecision due to a combination of weaker jobless claims and stronger Durable Goods/PCE (notably, the PCE data was a revision to stale Q4 data, so taken with a grain of salt). 10yr yields have been fairly sideways since the data, but MBS have gradually improved.

The National Association of Realtors released its Pending Home Sales Index (PHSI) today, which measures home purchase contracts that have been signed, but not yet closed. The index typically correlates with existing home sales in the following month. While January’s contract signings were only down 4.6% versus December, that was enough for the index to inch down to the lowest levels since data-keeping began in 2001. “It is unclear if the coldest January in 25 years contributed to fewer buyers in the market, and if so, expect greater sales activity in upcoming months,” said NAR Chief Economist Lawrence Yun. “However, it’s evident that elevated home prices and higher mortgage rates strained affordability.” To be sure, mortgage rates hit their highest recent levels in January but fell short of the levels seen in early 2024. At the time, Pending sales had fallen nearly as low as today’s report, thus adding some evidence for the negative impact from higher rates. [thirtyyearmortgagerates] The following bullet points show how each region changed from the previous month (and from the previous year).
Northeast

+0.3 (-0.5)

Midwest

-2.0 (-2.7)

South

-9.2 (-8.8)

West 

-1.2 (-4.5)

The Affirmatively Furthering Fair Housing rule, first introduced during the Obama administration and brought back by Biden, was unworkable, opponents said.

Some precedents from Trump’s first term do point to a scenario where depositories could re-enter the government mortgage market, according to one expert.

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The company missed analysts’ quarterly forecasts on operating earnings per share due to higher mortgage servicing rights amortization and operating expenses.

Treasuries gained for a sixth straight session. Morgan Stanley say the 10-year has scope to fall back below 4% if the prevailing view on the Fed shifts.

Bonds Can Seemingly Do No Wrong

Another day, another example of bonds ignoring the potentially negative cues while continuing to react from the positive ones. Correlation may not be causality, but stock losses have appeared to help facilitate bond buying on multiple occasions since last Friday. Today brought another example with stocks start to falter around 12:30ET following headlines regarding a 25% tariff rate on European imports. Even as stocks have moved off the lows heading into after hours trading, bond yields didn’t follow.  That leaves us at another “best since early December” level in both Treasuries and MBS.

Econ Data / Events

New Home Sales

657k vs 680k f’cast, 698k prev

Market Movement Recap

09:48 AM Slow, sideways morning so far.  MBS unchanged and 10yr up 0.2bps at 4.3

12:43 PM Best levels of the day with MBS up 1 tick (.03) and 10yr down 2.3bps at 4.274

03:28 PM New best levels.  MBS up 5 ticks (.16) and 10yr down 5.1bps at 4.246