Wednesday’s mortgage rates were the highest in roughly a month and very close to the highest levels in 2 months.  This followed stronger economic data on that same morning. Rates moved back down yesterday after separate econ data told a different story. Now on Friday, it’s a mixed bag. The underlying bond market was slightly weaker to start the day, and that meant rates started out modestly higher. But the last economic data of the week showed lower-than-expected consumer sentiment. Bonds improved as a result, but not enough for the average lender to go to the trouble of adjusting their mortgage rate offerings. The implication is that Monday’s rates would be back in line with yesterday’s if the bond market were to hold steady over the weekend. Keep in mind, that’s never a guarantee. The point of sharing the info is simply to relay the fact that rates could endure a bit of bond market weakness over the weekend without being any higher than they are today. 

Although bonds began the day in roughly unchanged territory, they began losing ground shortly thereafter. Things changed at the 9:30am NYSE open as stock losses helped arrest the selling pressure. Then at 10am ET, weaker Consumer Sentiment data (with a record low in current conditions) helped completely erase the selling.

The average price of a single-family home increased 1.7% from last year to $426,800 in the third quarter.

Company leaders said current strategy sets it up to profit and compete against its rivals as the mortgage market improves in the coming months.

Michael Barr said he believes artificial intelligence will have a positive long-term impact on the economy, though it may cause job losses in the short term.

New guidelines should provide homeownership opportunities for certain consumer segments with thin credit files and open up product options, lenders said.

Federal Reserve Gov. Christopher Waller said there was a popular “misunderstanding” Thursday regarding who can qualify for a “skinny” master account, noting that only firms with a bank charter would qualify for approval.

As of yesterday afternoon, mortgage rates were right in line with the highest levels in more than a month. The upward momentum was largely a product of 2 specific days: the October 29th Fed announcement and yesterday’s duo of economic reports that suggested less cause for concern over the labor market and strength of the services sector. Now today, we have different economic data telling a different story.  Were it not for the government shutdown, the market may have never placed nearly as much emphasis on today’s data. In fact, today is the first time that many market participants have even heard of one of the reports (a synthetic jobs report by Revelio). Revelio’s data suggested a decline in payrolls in October.  Combined with separate data that showed a surge in job cuts, there was a clearly negative message for the labor market. Bad economic news helps bonds which, in turn, is good for rates. All told, today’s move completely erased yesterday’s damage. The average mortgage lender made it almost all the way back down to last Friday’s levels. [thirtyyearmortgagerates]

Have Bonds Found Their Post-Fed Footing?

Looked at one way, bonds have been in a moderate selling trend since Fed day. Viewed through another lens, Fed day caused an isolated lurch toward higher yields and then we were generally sideways until yesterday’s econ data caused another lurch higher.  The common thread in each scenario is that bonds had been unable to find a reason to rally in any meaningful way. Amid such scenarios, we wait for such rallies to restore balance to the near-term outlook. Via weak results in private label econ data, a sharp morning selling spree in stocks (and perhaps some technical support seen as early as yesterday when 10yr yields topped out at 4.16), today provided that rally.  

Econ Data / Events

ADP Employment

42k vs 25k f’cast, -32k prev

ISM Biz Activity (Oct)

54.3 vs — f’cast, 49.9 prev

ISM N-Mfg PMI (Oct)

52.4 vs 50.8 f’cast, 50.0 prev

ISM Services Employment (Oct)

48.2 vs 47.6 f’cast, 47.2 prev

ISM Services New Orders (Oct)

56.2 vs 51.0 f’cast, 50.4 prev

ISM Services Prices (Oct)

70.0 vs 68.0 f’cast, 69.4 prev

Market Movement Recap

09:53 AM Fairly sharp rally at 8:20am CME open with more buying as stocks sell off.  MBS up 9 ticks (.28) and 10yr down 6.3bps at 4.097

01:56 PM very flat near strongest levels.  MBS still up 9 ticks (.28) and 10yr down 7.6bps at 4.084

04:18 PM Still flat into the after hours session. MBS up 9 ticks (.28) and 10yr down 7.3bps at 4.088

The shutdown has not only placed more emphasis on the alternative data that was already in the rotation, but also fueled interest in new sources. One that you’ll likely hear more about in the coming months is Revelio Labs, a company using data aggregation and modeling to synthesize it’s own version of nonfarm payrolls.  While it’s far from an exact match, the trends are similar, and Revelio’s data is less volatile (much like ADP always has been). All that to say, there’s no great way to justify this morning’s rally in bonds without the Revelio release at 8:30am ET, which showed a decline in monthly job creation.

It would be easy to mistake today’s rally as a product of an extremely high number of layoffs reported by the firm Challenger, Gray, and Christmas (aka Challenger Job Cut Report or “Challenger Layoffs”). But note that Challenger was released several hours early in the overnight session.  It definitely had an impact, but bonds went right back to business as usual shortly thereafter.