After improving modestly in the overnight session, bonds contended with the Retail Sales data at 8:30am ET.  At first glance, it should have been helpful, given that the headline came in at 0.2 versus a forecast of 0.6, but the closely watched control group (which excludes cars, fuel, and building materials) was much higher than expected. With that, bonds briefly the overnight gains. They’ve been bouncing back ever since. Some of that bounce has to do with a glut of bond buying 10 minutes before the 9:30am NYSE open.  The rest may be down to the inability of stocks to sustain a rally in early trading.

Mortgage rates are based on movement in the bond market, and the bond market is closed for most of the weekend.  As such, one might assume that Monday’s mortgage rates would always be right in line with Friday’s.  But this is definitely not the case for two reasons: 1. The bond market may not officially open in the U.S. until 8:20am ET, but U.S. bonds begin to trade late Sunday night.   2. Mortgage lenders don’t set their rates for the day right when bonds start trading.  The average lender waits until around 10-11am ET. Because of this, there can be quite a bit of movement in bonds before lenders set rates for the day.  The only time we’d see Monday’s rates hold perfectly in line with Friday’s are occasions like today where the bond market was in similar territory to Friday’s levels in the 10-11am ET hour this morning. The sideways drift means mortgage rates continue operating in a narrow range near the lowest levels since mid-October.

An executive order issued late Friday cut the Treasury Department Community Development Financial Institution Fund and other federal programs to their legal minimum.

The provisionally approved rate hike would provide financial relief to State Farm’s California subsidiary, which has said it needs to shore up confidence with solvency regulators and ratings agencies.

A federal judge in Maryland ruled against the City of Baltimore’s attempt to block cuts to Consumer Financial Protection Bureau program funding on procedural grounds.

After two consecutive quarters of profits, independent mortgage bankers lost money in the most recent period, for the ninth time in the last three years.

Issuances fell in January for residential and multifamily segments, as concerns over available workers and future tariffs came to the fore.

A Maryland judge temporarily halted mass layoffs of probationary employees at multiple agencies, citing legal violations and harm to states’ ability to respond to unemployment needs.

Despite some ups and downs on a small scale, mortgage rates have been sideways in the bigger picture.  That’s a good thing if the latest refi application data is any indication.  Demand is at the highest levels since October as rates have generally been holding near mid-October levels. Today was just another day in that regard.  Bonds (which dictate rates) were slightly weaker overnight (bond weakness implies higher rates). As as often been the case recently, stocks played a role in the rate movement. Prospects for a debt ceiling deal may have contributed to market optimism.  With that, mortgage rates were just a few tenths of a percent higher than yesterday, but to reiterate, not too far from yesterday’s latest levels.

Uneventful Friday, Even if Slightly Weaker

Friday’s trading session was the most uneventful of the week.  It began with moderate losses in the overnight session in concert with stock market gains.  Some traders attributed this to improved odds of avoiding a government shutdown by tonight’s deadline.  The only scheduled economic data was the Consumer Sentiment report which has fallen by the wayside to some extent as the results are increasingly discounted as being clouded by political affiliations of respondents. Nonetheless, the uptick in inflation expectations was notable and worth a bit of extra weakness in bonds at the time.  Even so, bonds remains well within the range set by yesterday’s trading.  The result is an “inside day” in market jargon, which one could either read as “indecisive” or “boring.”  We’d lean toward the latter.

Econ Data / Events

Consumer Sentiment

57.9 vs 63.1 f’cast, 64.7 prev

1yr inflation expectations

up 0.6%

5yr inflation expectations

up 0.6%

Market Movement Recap

09:30 AM Moderately weaker overnight in concert with stock market gains.  MBS down 3 ticks (.09) and 10yr up 3.4bps at 4.303

10:03 AM Some weakness following uptick in consumer inflation expectations.  MBS down 5 ticks (.16) and 10yr up 4.8bps at 4.317

12:27 PM Calm and sideways.  10yr up 2.6bps at 4.296.   MBS down 2 ticks (.06)

03:20 PM Losing some ground in PM hours.  MBS down 5 ticks (.16) and 10yr up 4.3bps at 4.313

04:49 PM Just a hair weaker.  MBS down 6 ticks (.19) and 10yr up 4.8bps and 4.318.