Mortgage Rate Intelligence & Market Updates

Sometimes we see a distinct shift in momentum on the first day of a new month. This is not one of those times. October 1st picks up where September 30th left off with more yield curve steepening (2yr and 10yr yield getting farther apart). This is a reflection of the sudden shift in economic data expectations last Wednesday combined with the fact that the Fed rate hike outlook has been broadly flat after Wednesday’s pop. It’s still anyone’s game as far as today goes. 10s and MBS are moderately weaker while the 2yr is almost 5bps lower (anchored to those now-resilient Fed Funds Futures). Stronger ISM components (orders, backlogs, prices) caused an initial pop in yields, but we’ve already recovered 20 minutes later.

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Just Another Bad Day For Bonds Without New Justification

10yr yields hit another long-term high today, breaking above 5.30% briefly before settling just under 5.29%. There was a flash of hope after the 8:30am econ data, but that reversed fairly quickly. Reasons can be debated. Some would say today’s broadly stronger econ data supported it while pointing out that the “beat” in PCE wasn’t really news in light of the methodology changes. On that note, some might say methodology that drops core PCE by 0.361 (July vs July unrounded) means that Fed policy will be less aggressive in fighting inflation than it otherwise would have been. In that context, today’s heavy underperformance in the long end of the curve actually makes good sense, but it’s just an interesting theory to entertain. Month/Quarter-end compulsory trading could certainly be an ingredient, but there’s no great way to confirm that until several days in the future. Either way, inbound econ data certainly matters on Thu/Fri and the radar perpetually awaits any big blips shaped like Iran war truces (or escalations).

Econ Data / Events

ADP jobs (Sep)

90K vs 70K f’cast, 38K prev

Core PCE (m/m) (Aug)

0.2% vs 0.3% f’cast, 0.2% prev

Core PCE (y/y) (Aug)

3.0% vs 3.3% f’cast, 3.3% prev

Core PCE Prices QoQQ2

3.30% vs 3.6% f’cast, 4.4% prev

Corporate profitsQ2

7.7% vs 8.2% f’cast, 0.5% prev

GDPQ2

2.2% vs 1.5% f’cast, 2.1% prev

GDP Final SalesQ2

2.8% vs 2.2% f’cast, 1.9% prev

PCE (y/y) (Aug)

3.4% vs 3.7% f’cast, 3.7% prev

PCE prices (m/m) (Aug)

0.3% vs 0.4% f’cast, 0.2% prev

Market Movement Recap

10:36 AM MBS down 2 ticks (.06) on the day and a quarter point from highs. 10yr up 2.4bps at 5.269

02:19 PM MBS down a quarter point and 10yr up 5.4bps at 5.299

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Falling pending sales are revealing a more uneven housing market

California and the Gulf Coast are projected to be the main, but not only, impact areas

For a few moments this morning, it looked as if rates might buck the recent trend and recover a bit of ground today. The underlying bond market was fairly flat overnight and then managed to improve after this morning’s PCE inflation data. But that improvement was short-lived.  Top tier 30yr fixed rates jumped to 7.60%. That’s only 0.02% higher than yesterday, but yet another long-term high. As frustrating as it continues to be, there are no convenient scapegoats for the reversal in terms of intraday news/data. Some small case could be made that the day’s economic data wasn’t exactly rate-friendly, but the timing of the market movement and indicators elsewhere in the market suggest that’s a waste of time. The only irrefutable way to connect cause and effect is to use broad strokes. The bond market is in the midst of a fairly rapid reassessment of the outlooks for Fed policy, inflation, and the supply/demand equation for government debt. Today may have seen some additional volatility due to the mechanics of the month/quarter-end trading environment, but not to the extent that anyone should expect rates to magically fall just because tomorrow is a new month.  A meaningful drop in rates will require one or more of these things:
Iran war ending and fuel prices dropping
economic data weakening
inflation falling significantly and sustainably
There are other things that can help/hurt, but these are the big three at the moment. [thirtyyearmortgagerates]

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