Surprisingly Big Bond Rally Relative to The Data

Bonds went on a bit of a buying spree on Thursday. It was the biggest rally day since November, at least, and that’s impressive given the motivations. Specifically, there was a trifecta of downbeat labor market reports (Challenger, Jobless Claims, and Job Openings). Individually, none of these are worth a third of the move we saw today, but the whole was greater than the sum of its parts.  There’s also a 4th report being traded today: next week’s big jobs report. In other words, between yesterday’s ISM employment numbers and today’s reports, traders are taking a cautious lead-off ahead of the big jobs report. This raises the stakes for volatility next Wednesday morning. 

Econ Data / Events

Continued Claims (Jan)/24

1,844K vs 1850K f’cast, 1827K prev

Jobless Claims (Jan)/31

231K vs 212K f’cast, 209K prev

Market Movement Recap

08:32 AM Modestly stronger overnight with additional gains after AM data.  MBS up almost an eighth and 10yr down 4bps at 4.24

10:06 AM Additional gains after JOLTS data with 10yr down 5 bps at 4.228 and MBS up 5 ticks (.16).

01:09 PM Best levels of the day. MBS up a quarter point and 10yr down 7.1bps at 4.207

Bonds were incidentally and inconsequentially stronger to start the overnight session, but began to see better gains after 7am ET. There were two notable bumps in volume after the 7:30am Challenger job cut data and the 8:30am Jobless Claims data.  Of the two, the latter was much more clearly linked to gains.  Challenger definitely got a small volume bump, but it’s hard to say that the gains weren’t already in progress when it came out.  The morning’s labor market data will be rounded out by the report with the biggest potential (emphasis on “potential”) reaction: Job Openings at 10am ET.

Yup, another competitor for lenders come July: Bed Bath & Beyond is acquiring Tokens.com “to develop a blockchain-based investment and personal finance platform” and will use tools from tZERO and integrate with blockchain firm Figure to offer services such as mortgages and renovation loans. Indeed, mergers, acquisitions, and strategic partnerships are alive and well, ranging from branches moving to talk of more headline-grabbing deals ahead. Welcome to the club, Bed, Bath, and Beyond, I think you’ll find it a confusing industry… there isn’t a lot of policy shaping selling household wares in comparison. Speaking of which, on today’s The Big Picture at 3PM ET Bob Broeksmit, President and CEO of the Mortgage Bankers Association, will be on for a candid conversation on the forces shaping housing finance policy, the happenings in Washington DC, regulatory priorities, and what lenders should expect next. (Today’s podcast can be found here and this week’s are sponsored by Truework, the one verification solution to replace in-house waterfalls. Verify any borrower with a VOIE solution that automates the entire process to quickly deliver the most accurate and complete reports with broad GSE coverage. Today’s features an interview with Truework’s Ethan Winchell on the intersection of technology and use, and how designing platforms for the mortgage industry has shifted toward practical application.) Products, Services, and Software for Brokers and Lenders

Shaw, which was part of last year’s standstill agreement with Third Point, said it will support shareholder-driven change on Costar’s board.

In a contentious House Financial Services Committee oversight hearing, Treasury Secretary Scott Bessent sidestepped questions on the Trump family crypto conflicts of interest and inflation with pugnacious responses to Democratic lawmakers’ questions.

Home equity investment platforms continue to attract dollars from the venture capital community but also face a proposed de facto ban in one state.

Despite a weak ADP jobs print, Treasury yields went nowhere, reinforcing a growing bearish, defensive case for rates, according to the CEO of IF Securities.

Shore Capital Partners, a Chicago-based private equity firm founded by billionaire Justin Ishbia, has raised more than $400 million for its second industrial fund.

The average top tier 30yr fixed mortgage rate hit its highest levels in 2 weeks yesterday. The caveat was that the range has been very narrow during these 2 weeks. As such, by remaining unchanged versus yesterday, today’s rates are part of the same narrow range (6.15-6.20% for MND’s index). There were two relevant economic reports this morning as well as an update from the Treasury department regarding borrowing expectations. The latter is important for interest rates because the level of Treasury issuance is a primary ingredient in determining almost any consumer lending rate in the U.S. Higher issuance would increase the supply of bonds.  Higher bond supply would decrease the price of bonds. And when bond prices fall, rates move higher, all else equal. This morning’s update kept issuance unchanged in the short term, but noted the probability of increased issuance in the next fiscal year.  This put some upward pressure on rates early in the day, but a tame report on the services sector helped bonds find their footing. Flat bonds = flat rates. The end.

No Whammies in Wednesday’s Data. JOLTS Rescheduled for Thursday

With the big jobs report on hold until next Wednesday, this morning’s ADP/ISM duo had to do most of the week’s heavy lifting in terms of important econ data. The response was underwhelming, at best. ADP was a complete non-event, but also fairly close to consensus. ISM was mixed and generally helped bonds hold their ground with yields moving down from highs at 10am. The day’s range remained inside yesterday’s and there were minimal losses by the 3pm close. The JOLTS data that was scheduled for Tuesday will now be coming out on Thursday morning.

Econ Data / Events

ADP Employment

22k vs 48k f’cast, 41k prev

ISM Biz Activity (Jan)

57.4 vs 56.0 prev

ISM N-Mfg PMI (Jan)

53.8 vs 53.5 f’cast, 54.4 prev

ISM Services Employment (Jan)

50.3 vs 52.3 f’cast, 52.0 prev

ISM Services New Orders (Jan)

53.1 vs  57.9 prev

ISM Services Prices (Jan)

66.6 vs  64.3 prev

Market Movement Recap

08:24 AM No major reaction to ADP data.  MBS down 2 ticks (.06) and 10yr up 0.7bps at 4.27

10:03 AM Weaker ISM Services and a slight rally in bonds.  10yr was 4.29, but now down to 4.272.  MBS are 2 ticks (.06) off the lows, but still down 2 ticks on the day.

02:53 PM MBS down 3 ticks (.09) and 10yr up 1.3bps at 4.276