The official holiday dates may be in the rearview, but as far as interest rates and underlying bond markets are concerned, this was the last day of the winter holiday season.  The same logic would put the start of the holiday season at December 23rd–a day where the average top tier 30yr fixed rate was exactly the same as it was today. Today’s rates had a chance to end up slightly lower, but the bond market responded to a decent showing in this morning’s only major economic report.  The ISM Manufacturing Index (one of many monthly economic reports that can influence day-to-day rate momentum) didn’t suggest any major surge in activity, but it did come in slightly stronger than the market expected. The reaction was logically mild, sending the average 30yr rate up by 0.03%. The stakes increase next week as market activity traditionally increases quickly on the first full week of the year.  We’ll also get several other economic reports including Friday’s big jobs report–consistently in a class by itself when it comes to its power to influence interest rates.

The changes add some steps that would have to be taken before Fannie Mae and Freddie Mac could exit following statements from a Trump ally indicating plans for a near-term release.

Refinance demand fell precipitously as average contract interest-rates for most loans rose in the two-week leadup to Christmas.

The Freddie Mac mortgage rate tracker on Thursday morning showed the conforming 30-year fixed rate mortgage creep closer to the 7% level last seen in May.

Bill Ackman, founder of Pershing Square Capital Management, predicts Fannie Mae and Freddie Mac will be removed from conservatorship within the next two years.

The Stamford, Connecticut-based bank hired Steven Sugarman to be its president. The former bank CEO, who now heads one of the country’s largest mission-based lenders, will help drive an effort to close a capital gap.

Hello 2025, goodbye 2024. It’s been 50 years since Jaws or Godfather Part 2 were on the screens. A half a century since Kung Fu Fighting first graced our airwaves. Despite the turn of the calendar page, the issues bond markets, lenders, and vendors face are the same. “Rob, what’s the word on the street about companies (lenders and/or servicers) making money out there?” Well, to be blunt, there are lenders out there who are earning 25 basis points or more on production without any servicing. Then again, there are lenders eking out a gain with their servicing but losing money without it. Ask your management if your company would be profitable without servicing. If there is one thing that lenders have learned about being profitable without servicing, it is a willingness to hold sales and branches accountable… actually accountable through actions rather than merely talk. Do you want to engage in unprofitable activities just to try to outlive your competition? (Today’s podcast can be found here and this week’s is sponsored by The BIG Point of Sale, which offers a highly configurable, easy to install point of sale solution. Its simplified consumer workflows and web-based portals allow for consumers and loan originators to collaborate with the back-office team to keep everyone informed throughout the loan process. Hear an interview with The Big POS’ Matthew VanFossen on the ins and outs of mortgage technology, from creating valuable products to implementation and training that will help companies maximize success.)

Uneventful Start to 2025

Bonds began the day in moderately stronger territory before losing ground after the Jobless Claims data.  AM selling stalled out shortly after bonds hit negative territory and settled sideways to slightly stronger in the afternoon. While that constitutes a reasonably amount of volatility (as did the previous session on Tuesday), the magnitude of the movements has been fairly mild.  All in all, it’s an uneventful start to the new year and a typically boring winter holiday trading environment.  If there’s one thing to focus on, it’s that trading levels are still right in line with the day after Fed day.  If there are two things, the second would be that yields are a bit lower than they were at the end of last week.

Econ Data / Events

Jobless Claims

211k vs 222k f’cast, 219k prev

S&P Manufacturing PMI

49.4 vs 48.3 f’cast, 49.7 prev

Market Movement Recap

09:30 AM Stronger overnight, erasing Tuesday weakness, but backtracking a bit now.  MBS up an eighth and 10yr down 2.5bps at 4.547

11:22 AM Weakest levels now.  MBS still up 2 ticks (.06) and 10yr still down 0.3bps at 4.569

04:13 PM MBS right in line with previous levels, up 2 ticks (.06) and 10yr down 1.3bps at 4.559

The last time mortgage rates were moving with any sense of urgency was in the days surround the Fed’s rate cut on December 18th. Incidentally, that movement was sharply higher, which is just as likely as any other outcome when the Fed is cutting rates for a variety of reasons. The rate rise leveled off by the end of Fed week with the average lender offering top tier conventional 30yr fixed rates near 7.125.  The average is only modestly lower today (7.07) and hasn’t moved much at all since then.   This sort of ambiguity is the default game plan for winter holidays due to changes in bond market participation.  It’s also a byproduct of the available economic data.  In not so many words, the Fed was the last major input, and we won’t get to the next one until next Friday’s jobs report.   Between now and then, moderate movement in either direction is possible, but any significant changes will require a surprise in the data.

Bonds were steadily stronger overnight, both in Asia and Europe.  10yr yields and MBS had both fully erased Tuesday’s losses within the first 30 minutes of domestic trading.  That’s when Jobless Claims data came out.  It was only sligh…