Not Expecting Fireworks From The Fed

Bonds had a mixed reaction to this morning’s Durable Goods data with stronger internals offsetting a weaker headline. Sellers were in control for most of the AM hours, but momentum shifted with the 7yr Treasury auction. All in all, it was a solid showing in spite of the rebound in equities markets (something we only care about today because it was a huge consideration yesterday). Looking ahead, tomorrow’s only notable agenda item is the Powell press conference at 2:30pm. The announcement itself can’t really offer any tradeable news.  Even Powell would be hard pressed to shake things up too much considering the mildly positive cue from inflation data and the ongoing policy uncertainty as a counterbalance.  That said, one can never truly rule out a volatile reaction to a Powell presser, but the odds are certainly lower this time around.

Econ Data / Events

Durable Goods

-2.2 vs 0.8 f’cast, -2.0 prev

Durables excluding defense and aircraft

0.5 vs 0.3 f’cast, 0.9 prev

Consumer Confidence

104.1 vs 105.6 f’cast, 109.5 prev

Market Movement Recap

08:41 AM Slightly weaker overnight and little-changed after Durable Goods data.  MBS down 2 ticks (.06) and 10yr up 2.8bps at 4.566

10:57 AM Back near weakest levels as stocks rebound.  MBS down an eighth and 10yr up 3.5bps at 4.574

01:43 PM Stronger after 7yr Treasury auction.  MBS unchanged. 10yr up 1.6bps at 4.554

Bonds were weaker overnight as markets calmed down a bit after yesterday’s DeepSeek frenzy.  The 8:20am CME open brought in just a bit of buying, but there’s been better selling since the 8:30am Durable Goods data.  The -2.2 vs 0.8 f’cast might look like a good outcome for bonds at first glance, but Durable Goods is a notoriously volatile report at the headline level due to major expenditures in certain sectors. That’s why there’s a separate component line item for “non-defense capital goods orders, excluding aircraft.”  Think of it like “core” durable goods.  Bottom line, the core is offsetting the headline, and causing bonds to move back to the weaker opening levels.

“Last year I joined a support group for procrastinators. We haven’t met yet.” Lenders and vendors are certainly meeting here in Austin. What’s going on out there? There’s endurance. Congratulations to my son Robbie as today is his 1,000th podcast, the link to which is posted at the bottom of every opening paragraph. (What have you done, workwise, 1,000 times?) There’s innovation. There’s Praxis Lending Solutions, newly launched, focused on workflow redesign, tech assessment, and customer experience. There’s education. On today’s episode of Mortgages With Millennials, Kristin Messerli and Robbie Chrisman welcome a couple of potential first time home buyers to ask them about their home search as it pertains to working with a lender and the customer experience. There’s customer service. Want to do a client with a high credit card balance (and paying 28 percent on it) a favor? Of course you want to put them into a cash out refi, but if that doesn’t work, for $1 have them join American Consumer Council which gives them access to membership in normally off-limit credit unions. Some, like UFCU in Austin, will accept transferred balances into an account where the rate can be only 9.9 percent. Hmmm… 9.9 versus 28. (Questions can be directed to UFCU’s Michael Jones.) (Today’s podcast can be found here and this week’s is sponsored by Figure. 50 percent of the top IMB’s use them, and if you haven’t examined your HELOC/HELOAN strategy recently, it’s time to get on it. Hear an interview with Polunsky Beitel Green’s Peter Idziak on the various executive orders Trump has issued since he entered office and their potential impacts on the housing industry.)

Fannie Mae and Freddie Mac’s stock were downgraded to “underperform” by KBW as they are currently priced above its expectations.

Sales rates, as well as bid-to-ask spreads at foreclosure auctions both showed signs of increasing demand from November to December, according to research.

The market is watching to see how investors handle any market dislocations that arise as elected leaders look to reform the government-sponsored enterprises.

The final vote was 68-29 in favor of Senate the confirmation of the billionaire hedge fund manager.

The nation’s largest homeowners insurance providers imposed rate hikes in double-digit percentages last year, led by Farmers’ 53.5% increase in Maryland.

There are two distinct patterns of behavior when it comes to rates interacting with stocks.  The first could be called the “conventional wisdom” pattern, which holds that investors move money between stocks and bonds, thus creating a correlation between stock prices and rates (as investors buy more bonds, rates move lower). The second pattern is more commonly seen when there is some uncertainty about the near-term outlook for the Fed Funds Rate.  In this pattern, both stocks and bonds benefit from a friendlier Federal Reserve, thus creating an inverse relationship between stock prices and rates. Even though there is some uncertainty about the near-term Fed rate outlook and even though we have a Fed meeting coming up on Wednesday, today was all about conventional wisdom for interest rates.  Tech stocks plummeted on news of a cheap, competent, Chinese AI competitor. While many details are still likely to be revealed and understood, the market wasted no time in unwinding quite a bit of the bullishness previously baked in to NVDA, et. al.  Whether investors were simply looking for places to park the proceeds from that stock selling or legitimately betting on economic fallout, bond buying ramped up in a major way.  The average mortgage lender is now back in line with the lowest levels since late December, but just barely. Should you view this as a bigger picture turning point in the rate narrative? That would be premature. Today’s news was not economically negative, nor did it suggest a new rush of disinflationary momentum. Those are the sorts of things that would be needed to confirm a sea change for rates. As to whether this will result in another day or two of improvement regardless of big picture implications, that remains to be seen. History suggests there’s just as much of a chance of a rebound in the other direction tomorrow.

Bonds Seek Lower Yields, But not Too Deeply Yet

On Friday night, a vast majority of market watchers had never heard of the Chinese AI company DeepSeek. By mid morning today, it was all a vast majority of market watchers could talk about.  DeepSeek’s list of accomplishments includes: much lower cost than ChatGPT, similar competence to ChatGPT, and just in the past 24 hours, rising to the top of Apple’s free app download chart. All of the above added up to some sort of real or imagined wake up call for investors on the real or imagined overvaluation of NVDA and the like. NVDA saw the biggest daily decline in market cap in history (something it’s done several times due to the uncommon combination of its size and volatility). All of that money needed a home, and there was plenty of room in the bond market. Either that or investors were legitimately hedging against ongoing impacts. Either way, it’s far too soon to conclude that this is the moment in history where the bond market knew that rates had finally turned a corner to head much lower (something that still requires disinflation confirmed with data, preferably in conjunction with lower Treasury issuance and softer econ data).

Econ Data / Events

New Home Sales

698k vs 670k f’cast, 674k prev

Market Movement Recap

09:54 AM Sharply stronger overnight, but giving back some gains.  MBS up a quarter point and 10yr down 8.3bps at 4.546

02:01 PM Some volatility, but broadly sideways since the open.  MBS up 10 ticks (.31) and 10yr down 9.2bps at 4.537

03:25 PM MBS near best sustainably held levels, up almost 3/8ths.  10yr down 10.2bps at 4.528