Gains Erased by Month/Quarter-End Trading

If it’s the last day of a month and especially if it’s also the last day of the quarter, and if bonds are making a move in the second half of the day for no other apparent reason, the default scapegoat is month/quarter-end positioning.  Month-end trading can take a variety of forms ranging from broad asset-allocation trades between stocks and bonds to specific buying/selling of Treasuries to achieve various portfolio goals. This can be as simple as certain accounts no longer needing to hold as many Treasuries after the 3pm marking period. Either way, the selling wasn’t extreme, by any means, but it was enough to erase the gains facilitated by this morning’s weaker econ data.

Econ Data / Events

Case Shiller Home Prices-20 y/y (Jul)

1.8% vs 1.6% f’cast, 2.1% prev

CaseShiller 20 mm nsa (Jul)

-0.3% vs — f’cast, 0.0% prev

FHFA Home Price Index m/m (Jul)

-0.1% vs 0.1% f’cast, -0.2% prev

FHFA Home Prices y/y (Jul)

2.3% vs — f’cast, 2.6% prev

Chicago PMI (Sep)

40.6 vs 43 f’cast, 41.5 prev

CB Consumer Confidence (Sep)

94.2 vs 96 f’cast, 97.4 prev

JOLTs Job Quits (Aug) (lower = better for rates)

3.091M vs — f’cast, 3.208M prev

Job Openings (Aug) (lower=better for rates)

7.227M vs 7.2M f’cast, 7.181M prev

Market Movement Recap

10:42 AM Modestly stronger overnight and some additional buying after data.  MBS up 3 ticks (.09) and 10yr down 2.7bps at 4.112

11:45 AM giving up some gains now.  MBS up 1 tick (.03) on the day and 10yr nearly unchanged at 4.139

02:00 PM weakest levels of the day for MBS, now unchanged and down an eighth from highs.  10yr down half a bp at 4.134

03:26 PM new lows for MBS, down 6 ticks (.19) from the highs and 2 ticks (.06) on the day.  10yr yields are up 1bp at 4.149

No new news on the probably government shutdown, but betting markets show increased odds, for whatever that’s worth. The only reason to watch or care about the shutdown (for bond watching purposes, anyway) is to know what this week’s menu of econ data looks like.  A shutdown likely means no jobs report. But there are other reports capable of moving the needle, even if to a much lesser degree. This morning’s examples included Chicago PMI in line with 2025 lows, the weakest labor differential (part of the Consumer Confidence report that measures the gap between those who say jobs are plentiful vs scarce) of this cycle, and job openings/quits both near cycle lows. Bonds were already slightly stronger this morning, but gained more ground after the data.

“Why do millennials think the government saved their lives? Because they are indebted to it forever.” Here in Colorado, the United States federal government owns more than a third of Colorado land. Quick, build subdivisions! But the federal government is in the news for another reason. Either I’m getting older, or these budget stalemates seem to come more often every year. Furloughed people don’t buy houses, some may not make their mortgage payments, and hundreds of thousands of federal employees will be furloughed if additional funding cannot be approved. Lenders are on alert, of course, and there are more details in the Capital Markets section below. Meanwhile, LOs are just trying to keep up on trends and in today’s Mortgage with Millennials at 1PM ET, sponsored by Tidalwave, the hosts sit down with Bradley Clerkin, Head of AI at ThoughtFocus, and Jayendran GS of Prudent AI, to explore how stronger data pipelines, compliance-ready models, and borrower-facing innovations are transforming underwriting, risk management, and the customer experience. And at 2PM ET, the hosts are joined by Liz Green and Michael Simmons on Mortgage Pros 411 to discuss appraisal trends. (Today’s podcast can be found here and this week’s are sponsored by Spring EQ, one of the nation’s leading non-bank home equity lenders, giving partners more ways to serve customers. Known for speed, service, and innovation, Spring EQ makes tapping into home equity easier. Hear a discussion between Robbie and Rob Chrisman about what lenders are seeing.)

A potential government shutdown could create unprecedented risks for housing, delaying data releases, and affecting markets more than past shutdowns.

Nearly 20% of homeowners had a mortgage rate of at least 6% in the second quarter of this year, signaling Americans are warming up to higher rates, Redfin said.

Washington Federal Bank and Planet Home Lending are both off the hook for the remainder of their consent orders, which the bureau quietly terminated.

Since the end of July, UWM’s common stock price gained 55%, but an improved mortgage origination outlook was already accounted for, said Jeffrey Adelson.

Class action lawsuits accuse the lender and servicer of negligence over the incident which compromised the sensitive data of tens of thousands of customers.

It was an uneventful day for the bond market (and, thus, interest rates) as investors wait for clarity on this week’s potential government shutdown. It’s not the shutdown itself that would notable. Rather, it would be the absence of this Friday’s jobs report (published by the Federal government) as it would deprive the rate market of its brightest guiding light. In the bigger picture, after last month’s jobs report helped usher rates to the lowest levels in nearly a year, other economic reports gradually pushed back in the other direction. With the labor market showing some signs of potential weakness, each new jobs report will be critical in determining if there will be additional runs toward new long-term lows. Even a stop-gap/short-term funding bill would be sufficient. The deadline for a decision is 12:01am ET on Wednesday morning. 

Waiting on Details as Bonds Reinforce The Range

It was a forgettable trading day, but at least slightly stronger for the bond market. The only notable volume and volatility surrounded the 9:30am NYSE open. Apart from that, yields were basically flat at slightly stronger levels starting around 4am ET.  Today’s only meaningful order of business was to wait and see if anything came of a meeting between Trump and congressional leaders regarding the increasingly probably government shutdown. Initial reports from that meeting were not very promising at the close, but there was no market reaction.

Market Movement Recap

09:05 AM Moderately stronger overnight, but giving up some gains.  MBS up 1 tick (.03) and 10yr down 1.4bps at 4.159

12:39 PM Best levels of the day.  MBS up 3 ticks (.09) and 10yr down 3.6bps at 4.137

03:04 PM Still near stronger levels at 3pm close.  MBS up 3 ticks (.09) and 10yr down 2.7bps at 4.146