Bonds Rattled By Surprisingly Big Beat in Spending Data Today's big surprise was the PCE price index component of Q1 GDP.  GDP itself was weaker than expected, but even that was explained away by components not related to private domestic consumption.  Focusing on the latter makes Q1 look just as strong as any of the past few quarters.  PCE did the most damage for two reasons.  It was MUCH higher than expected (3.7 vs 3.4) and that implies tomorrow's PCE data (a monthly version of today's quarterly report) is also at risk of coming in higher than expected.  This "sneak peek" effect is only a concern once per quarter with the "advance" release of GDP. Econ Data / Events Jobless Claims 207k vs 214k f'cast, 212k prev Continued Claims 1781k s 1814k f'cast GDP 1.6 vs 2.5 f'cast, 3.4 prev Q1 PCE Prices  3.7 vs 3.4 f'cast Wholesale Inventories -0.4 v s +0.2 f'cast Market Movement Recap 08:41 AM Bonds losing ground quickly after 8:30am data.  MBS down a quarter point.  10yr up almost 5bps at 4.691. 11:07 AM Weakest levels at 9:30am and pushing back slightly since then.  10yr up 6.4bps at 4.706.  MBS down 10 ticks (.31). 01:28 PM No reaction to 7yr Treasury auction.  10yr up 6.1bps at 4.703.  MBS down 11 ticks (.34) 03:35 PM Increasingly flat at the same old levels.  10yr up 6bps at 4.702 and MBS down 10 ticks (.31).

Interest rates care about quite a few different things, but inflation and Fed policy are two of the biggest considerations.  One of the Fed's favorite ways to track progress on inflation is the PCE price index which comes out every month, but also every quarter. Oddly enough, the quarterly comes out a day before the monthly data on the 4 days of the year where a new quarter is reported.  Today was one of those days and the quarterly data showed a big surge in inflation.  The implication is that there's a much bigger risk that tomorrow's monthly inflation number also proves to be higher than expected. Bonds/rates don't like inflation to begin with, but it's even more problematic when it has a direct bearing on Fed policy decisions.  This particular news is seen as pushing the Fed even farther into the future for its first rate cut of this cycle.  In other words, both the data, and the Fed implications were bad news for rates today. The average lender jumped immediately higher by roughly an eighth of a point.  This brings the top tier conventional 30yr rate index over 7.5% for the first time since November 13th.  Tomorrow could add insult to injury, but it's also worth noting that markets are expecting worse news now, so if it's only a little worse, the injury might not be that bad.

I travel a little bit, so it was with great interest that I read, “The Department of Transportation… will soon require airlines to quickly refund passengers if they cancel, delay, or make significant changes to flights.” “A book hit my head, and I have only my shelf to blame.” Odd things happen all the time. Someone puts their cup on the ground, leans over to pick it up, and hits their head on the counter and gets a concussion. If I was rich, I’d have someone pick it up for me. What does $65 million get you near Miami? Rob Branthover points out that the three lots are owned by Patrick Markert, of AmeriSave fame. Who’s gonna buy it? Men and women cite different challenges when purchasing a home. 55 percent of females said their biggest challenge when buying a home as a single individual was finding a home in their price range, but 51 percent of males said that their biggest challenge was saving up for a downpayment. There are some similarities. Over half of respondents believe the idea of waiting for a significant other to buy a home is outdated. And two-thirds of single homebuyers did not have financial assistance from family or friends with a downpayment for their home. (Found here, this week’s podcasts are sponsored by Calque. With The Trade-In Mortgage powered by Calque, homeowners can buy before they sell, make non-contingent offers, and tap their home equity to fund the down payment on their next home. Today’s has excerpt from yesterday’s Mortgage Matters show with Sterling Point Advisors Jeff Juliane and Brett Ludden on the M&A space and how to value mortgage companies.)

It's a bit of a tricky morning in the bond market when it comes to reconciling the data with the market movement.  At face value the headlines make a better case for lower rates with GDP at 1.6 vs 2.5, wholesale inventories missing big and Jobless Claims not too far from forecast.  But the devil is in the details--specifically, the details inside the quarterly GDP data.  GDP will be reported 3 times for Q1.  Today was the first of those and as such, the PCE price data component offers a bit of a sneak peek at tomorrow's PCE inflation data.  GDP is not a hugely important report, but PCE inflation is.  With all that in mind, the PCE component in today's data was 3.7 vs 3.4.  In a world where a 0.1 beat/miss can cause massive volatility for the bond market, that's a huge beat.  Bonds will likely be feeling extra defensive until and unless tomorrow's Core PCE number tells a slightly less dramatic story. Stocks haven't loved the data either, due to the implications for the Fed's rate outlook.  The following isn't the pattern normally associated with stocks and bonds, but it is prevalent at times when the market is actively refining its outlook for the Fed Funds Rate. In the slightly bigger picture, this morning's weakness constitutes the first significant break above the 4.65 level and it breathes a bit more life into the uptrend that had dominated the month of April (the one that looked to be defeated by the 4.65 ceiling.

Uneventfully Weaker Regardless of Durable Goods Data Bonds were weaker in the overnight session on a combination of anxiety over potential sales of US Treasuries in Japan and European economic data.  The domestic session brought actual selling of US Treasuries in the form of the 5yr Treasury auction, but the market already knew about that one.  The auction was reasonably well received and had no impact on trading levels.  Earlier in the morning, Durable Goods came out right in line with expectations and also had essentially no impact.  Overnight weakness was maintained throughout the day with most of the momentum being sideways near recent highs yields.  Econ Data / Events Durable Goods  2.6 vs 2.5 f'cast last month revised from 1.3 to 0.7 Durables, excluding defense and aircraft 0.2 vs 0.2 f'cast last month revised from 0.7 to 0.4 Market Movement Recap 09:06 AM Weaker overnight and little-changed after AM econ data.  10yr yield up 4.1bps at 4.644.  MBS down 6 ticks (.19). 10:51 AM Weakest levels.  MBS down 7 ticks (.22) and 10yr up 5.6bps at 4.657 01:04 PM Boring 5yr auction.  No major reaction.  MBS down 5 ticks (.16).  10yr up 4.8bps at 4.649. 03:55 PM Roughly unchanged from the last update and mostly flat since the late AM hours.

The average mortgage lender was able to offer conventional 30yr fixed rates that were very close to yesterday's levels despite bond market movement that suggested a bigger spike.  In a vast majority of cases, if the bond market is in weaker territory compared to the previous day, rates will be higher in proportion to that weakness. In today's case, rates moved higher by an arguably insignificant 0.01% on average.  Bonds suggested the increase should be more like 0.03-0.05%.  Lenders were able to hold the line due to the timing of yesterday's bond market improvement and the fact that it was not fully priced in to rate offerings. In other words, if mortgage lenders were painters, they got a delivery of some nice new paint yesterday but didn't have time or inclination to get it all on the canvas.  Now today, some of that paint has gone missing, thus leaving the big picture to look almost exactly like yesterday's.

Sometimes you just have to “risk it for the biscuit.” Capital markets are, for the most part, a little more complicated than, say, a recipe for next level dark chocolate brownies with salted caramel. Occasionally the topic of LOs or brokers being able to lock a loan, any time, any day, comes up. The New York Stock Exchange, owned by Intercontinental Exchange (ICE) has started polling market participants on their interest in and potential implications of an exchange that trades stocks 24/7. The polling underscores growing interest in trading stocks in off-hours. Could MBS be far behind? The survey comes after 24 Exchange, backed by Steven Cohen's Point72, applied with the Securities and Exchange Commission to start the first 24-hour exchange. The prospect of 24-hour trading, which would likely lead to changes across the ecosystem, becomes a heavier lift for exchanges as they're supervised by the SEC. Found here, this week’s podcasts are sponsored by Calque. With The Trade-In Mortgage powered by Calque, homeowners can buy before they sell, make non-contingent offers, and tap their home equity to fund the down payment on their next home. Today’s has an interview with Michael Bremer and Peter Kallodaychsak on interactions between lenders and Realtors in the wake of the proposed NAR settlement. Lender and Broker Products, Software, and Services Down Payment Resource’s Q1 2024 Homeownership Program Index (HPI) report reveals the largest annual jump in programs since it began tracking data in 2020, with 2,373 DPA programs now available nationwide. That’s 204 more programs than Q1 2023, a 9 percent YoY increase. DPR also noted that there’s at least one program in every U.S. county and 10 or more programs available in 2,000 counties, making it highly likely DPA could boost homeownership for borrowers in your footprint. The report also documents increases in programs for manufactured housing and multi-family purchases. Lenders are reminded that DPR is a software company, with a suite of tools to help you operationalize DPA to better serve your customers and lower your declines, especially among LMI buyers. Read the full report or schedule a demo to learn more.

The bond market has been decidedly more sideways after hitting longer-term yield highs last Tuesday.  10yr Treasuries have been a relatively narrow range since then, mostly respecting a ceiling of 4.65 and a floor of 4.57.  The first two days of the week saw yields start near the ceiling and improve by the close.  We're starting near the ceiling again today but so far, we haven't been as quick to rally.   Weakness began in the overnight session on a combination of factors.  Tensions remain high heading into the Bank of Japan announcement (after the close on Thursday).  Concerns center on the prospect of official selling of Treasuries in order to defend against additional weakness in Yen/USD exchange rates. Losses continued after strong IFO data in Germany with some spillover between European and US yields.   In general though, US yields have been trending gradually higher since hitting the lows yesterday afternoon.  Neither the IFO data, nor the U.S. Durable Goods reaction have caused much deflection. The afternoon's key event is the 5yr Treasury auction at 1pm ET.  These don't usually cause big reactions, but it's definitely capable of intraday volatility and/or shifting an intraday trend.

The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, fell back for the first time in three weeks during the week ended Aril 19 as interest rates continued to rise.  The Index declined 2.7 percent on a seasonally adjusted basis from one week earlier and was 2.0 percent lower before adjustment. The Refinance Index decreased 6.0 percent from the previous week and was 3.0 percent higher than the same week in 2023. The refinance share of applications was also down, declining to 30.8 percent from 32.1 percent the previous week. [refiappschart] The seasonally adjusted Purchase Index decreased 1.0 percent, the fifth decline in the last six weeks. The unadjusted Purchase Index did increase fractionally but was 15 percent lower than during the same week one year ago. [purchaseappschart] “Mortgage rates continued to move higher last week, reaching their highest levels since late 2023 and putting a damper on applications activity. The 30-year fixed rate increased for the third consecutive week to 7.24 percent, the highest since November 2023,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “ Purchase applications declined, as home buyers delayed their purchase decisions due to strained affordability and low supply. T he ARM share of applications increased to 7.6 percent, consistent with the upward trend in rates, as buyers look to reduce their potential monthly payments.”

Straightforward Gains After PMI Data Tuesday's session was infinitely more interesting than Monday's with the caveat being Monday was a total snooze-fest.  Bond market volumes were much closer to recent averages and there was even some logical, data-driven volatility.  As always, volatility can go both ways and today's went the right way after S&P PMIs came in well below forecast in both Manufacturing and Services sectors.  Relative to recent norms, the move was far from big, but it looked big compared to Monday.  Notably, even before the data, yields were holding under the technical level at 4.65.  The gains merely solidify the sideways vibes that have been in place since the middle of last week. Econ Data / Events S&P Services PMI 50.9 vs 52.0 f'cast S&P Manufacturing PMI 49.9 vs 52.0 f'cast Market Movement Recap 09:58 AM Weaker overnight, but erasing losses after PMI data.  10yr down 2.6bps at 4.584.  MBS unchanged in 6.0 coupons, up 6 ticks (.19) from lows.  10:31 AM MBS catching up with the rally, now up 5 ticks (.16).  10yr down 3.2bps at 4.578. 01:12 PM Solid 2yr auction.  Near best levels.  10yr down 3.7bps at 4.573.  MBS up 6 ticks (.19). 03:25 PM Off the best levels, but not by much.  MBS up an eighth on the day.  10yr down 1bp at 4.60