Dot Plot in Focus With Fed’s “No Cut” Announcement

Bonds lost some ground after this morning’s economic data, arguably in response to the Retail Sales control group beating its forecast.  Higher-than-expected import prices could also have played a supporting role, but the selling was too modest to worry about perfectly allocating the blame.  It was also erased by an afternoon rally that was best explained by general risk-off vibes surrounding geopolitical headlines.  Here too, we’re not seeing anything too compelling in terms of trading justification.  The best bet on that front would be Wednesday’s dot plot from the Fed (the chart showing each Fed member’s rate outlook over the next few years).  That will be released at 2pm with the “no cut” announcement.

Econ Data / Events

Retail Sales

-0.3 vs 0.1 f’cast, 0.0 prev

Core Retail Sales

0.4 vs 0.3 f’cast, -0.1 prev

Export Prices

-0.9 vs -0.7 f’cast, 0.1 prev

Import Prices

0.0 vs -0.2 f’cast, 0.1 prev

Market Movement Recap

09:09 AM Stronger overnight, flat after data, and losing some ground now.  MBS still an eighth higher on the day and 10yr down 3.5bps at 4.417

01:53 PM Best levels of the day now on Middle East newswires.  MBS up 5 ticks (.16) and 10yr down 6.5bps at 4.386

In Spain, Spaniards are shooting water pistols at foreigners to protest the impact of mass tourism: it has created a housing crunch. Tourism in the United States is down considerably, especially from Canada, impacting the economy here on Oahu and in other locations. But in the U.S. the inventory of properties for sale is increasing, and the market has turned for buyers at the expense of sellers. New listings rose 5.2 percent YOY, active inventory is up almost 28 percent year-over-year, days on the market have increased by 6 days, but home prices are essentially flat. Sellers at the lower end aren’t budging… yet. At the higher end, LOs tell me that the market feels “heavy.” (Today’s podcast can be found here and this week’s is sponsored by TRUE. TRUE cuts time to critical loan events from days to minutes by using background AI workers to instantly validate data and automate underwriting decisions. Today’s has an interview with SALT Lending’s Shawn Owen on how digital assets like Bitcoin are reshaping mortgage lending, from collateral risk and fraud prevention to construction financing, regulatory hurdles, and the future of tokenized mortgage markets.) Products, Software, and Services for Brokers and Lenders “Is your loan servicing operation overwhelmed by fragmented and manual processes, inconsistent action handling, or compliance blind spots? In our latest blog, ‘From Chaos to Clarity: How Workflow Transforms Loan Servicing Operations,’ we explore how intelligent automation can help you streamline and automate complexity, improve compliance, and respond faster to borrower needs. Discover six powerful ways workflow enhances standardization, efficiency, visibility, accountability, data use, and the user experience—each brought to life through real-world servicing scenarios. Learn how organizations like yours are eliminating manual errors, accelerating response times, and simplifying complex decisioning with intelligent workflow automation. If you’re looking to reduce the risk and costs of single-point solutions, improve consistency, and stay ahead in a rapidly changing industry, this blog is a must-read. See how organizations are achieving these outcomes with the help of a flexible, proven solution like CLARIFIRE®.”

Bonds were decently stronger in the overnight session, but not for any new, specific reasons.  Trading levels have been cutting an increasingly narrow, sideways range.  Until that changes, a moderate rally following 2 days of weakness is the least surprising outcome. But that was before the AM data, which featured Retail Sales at -0.9 vs =0.8 f’cast.  One would think that’s worth more bond buying, but the control group (retail sales excluding autos/gas/building materials) rose to 0.4 vs 0.3 and had a small positive upward revision to last month. We’ve seen the control group set the tone on several occasions regardless of the headline.  With bonds losing some ground after the data, today seems like yet another example. 

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Any food science major will tell you that the difference between jelly and jam is that jam has chunks of fruit in it; jelly is strained. There is also a difference in costs in our biz. Here in Honolulu at the MBAH conference, costs are part of the discussion, and sure enough, there is a map of the mortgage closing costs by state. There is also a difference in denial rates, state by state, for a variety of reasons, so the National Association of Realtors® recently examined data from 2023 to give homebuyers some information as to where denial rates are the highest and lowest, and which groups they most impact. The best (Easiest? Most qualified borrowers?) states to buy in, according to the study, are Alaska, North Dakota, and Nebraska, which all had drastically lower denial rates. The toughest are a trio of Southern states: Mississippi (rejecting 19% of all 2023 mortgage applications), Louisiana (18%), and West Virginia (15%). (Today’s podcast can be found here and this week’s is sponsored by TRUE. TRUE cuts time to critical loan events from days to minutes by using background AI workers to instantly validate data and automate underwriting decisions. Today’s has an interview with TRUE’s Steve Butler on the next evolution of “background AI” in mortgage tech: from cutting decision times to minutes, enabling instant pre-approvals, exposing the hidden costs of partial AI solutions, and what’s ahead in reshaping the future of lending.) Products, Software, and Services for Brokers and Lenders

While there’s been no shortage of political and geopolitical headlines over the past 2 business days, there hasn’t been much by way of inspiration for the bond market. Bonds (and, thus, rates) have moved nonetheless.   Perhaps it was the lower rates achieved last Thursday that prompted a pullback, or perhaps traders are pricing in some caution ahead of this week’s data and Fed announcement. Either way, bonds lost ground on Friday and again today–both times with little by way of overt justification. Fortunately, the losses have been modest.  They leave the average rate very much in the middle of its range over the past 2 months. And it wouldn’t be unfair to say rates have generally been sideways since last November in the bigger picture. Tomorrow’s Retail Sales data is capable of causing volatility in either direction, depending on the outcome.  Then on Wednesday, we’ll hear from the Fed.  While they will not be cutting rates at this meeting, they will be updating their rate outlook–something that frequently gets the market’s attention.