MBS RECAP: Deceptively Relevant Econ Data But Range Prevails

Posted To: MBS Commentary

Since Retail Sales rocked markets yesterday, perhaps bonds would be interested in responding to economic data again today? This question seemed to have been answered when bonds apparently jumped following this morning's 8:30am economic data. The only problem was that the data in question included NY Fed Manufacturing and Import/Export Prices. These are not reports that tend to cause such immediate and highly correlated movement. So what gives? For better or worse, I stare at a tick by tick stream of bond data for most of the day. Anyone else who spends their lives in such a manner would also surely have seen bonds on the move in 2 distinct ways well in advance of 8:30am. The first was a more general move that began with the European trading session. While it was general and relatively slow…(read more)

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MBS RECAP: Deceptively Relevant Econ Data But Range Prevails
MBS RECAP: Deceptively Relevant Econ Data But Range Prevails

Mortgage Rates in a Holding Pattern

Posted To: Mortgage Rate Watch

Mortgage rates were slightly higher today, marking the 6th day in a row where they’ve reversed course versus the previous day. This is the sort of behavior we see when underlying financial markets are having a hard time making up their mind (or are simply waiting for something before committing to the next big move). In the case of mortgage rates, the underlying financial market is the bond market. There are specific bonds that most directly affect mortgage rates, but they are almost always moving in the same direction as other bonds anyway. That allows us to use something like the 10yr Treasury yield to keep an eye on interest rate momentum. There we see yields locked in an increasingly narrow range since the beginning of the year. Movements inside that range aren’t important to the bigger…(read more)

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Mortgage Rates in a Holding Pattern
Mortgage Rates in a Holding Pattern

MBS Day Ahead: Range Trade Likely to Dominate Heading Into Holiday Weekend

Posted To: MBS Commentary

Rates were at long term highs in early November 2019. Several global economic risks were beginning to swirl at the same time. These included a slowdown in German GDP, the weakest Chinese retail sales in 15 years, Italian budget drama, and a Federal Reserve that didn't seem to care about big stock losses in October. The Fed had released an announcement on the Wednesday before Veteran's Day weekend. That trading day saw 10yr yields hit 3.25% and they never went any higher after that. In fact, they mostly went lower–especially when the stock sell-off kicked into higher gear in December. All of the above made November and December the best 2-month stretch for rates in more than 2 years. When rates rally that aggressively, they usually take a break and move sideways before deciding if the…(read more)

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MBS Day Ahead: Range Trade Likely to Dominate Heading Into Holiday Weekend
MBS Day Ahead: Range Trade Likely to Dominate Heading Into Holiday Weekend

MBS RECAP: Dormant Data Returns in a Big Way

Posted To: MBS Commentary

Of all the reports silenced by the government shutdown, Retail Sales was probably the most missed. It didn't help that December is a rather important month for such data. December's report finally arrived today, and it made waves . While there has been some question as to how quickly markets would be willing to "trust" the economic data affected by the shutdown, traders were instantly willing to react in this case for 2 reasons. First off, the Census Bureau simply told markets that its collection efforts were solid right on the front page of the report. But even more important , in this case, was the size of the miss, with sales falling at their fastest pace since 2009. It was also a rare "down December" for the series, with 2014 being the only other example during…(read more)

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MBS RECAP: Dormant Data Returns in a Big Way
MBS RECAP: Dormant Data Returns in a Big Way

Rates Are Better Today, But Not Back to 1-Year Lows

Posted To: Mortgage Rate Watch

Mortgage rates recovered today after rising to the highest levels in a week as of yesterday. The improvement followed a much-weaker-than-expected Retail Sales report–something investors have been waiting on for nearly 2 months due to the government shutdown. Retail sales comprise an important part of economic activity, and the economy is one of the biggest considerations for interest rates. Generally speaking, economic strength pushes rates higher, all other thing being equal. Thus, the unexpectedly weak retail numbers had the opposite effect. How big was the effect? Not quite as big as most other media outlets would suggest. The discrepancy is due to the regular Thursday release of the industry’s most widely-cited mortgage rate report from Freddie Mac. While that report is accurate for the…(read more)

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Rates Are Better Today, But Not Back to 1-Year Lows
Rates Are Better Today, But Not Back to 1-Year Lows

MBS Day Ahead: Retail Sales is Back! Will Traders Pretend Nothing Changed?

Posted To: MBS Commentary

Perhaps it wasn't their fault, but several top tier economic reports up and left us during the government shutdown. We knew we'd see them again at some point, but in the meantime, we had to adapt to gleaning economic cues elsewhere. Moreover, we're left to wonder what the government shutdown time may have done to corrupt the first few rounds of economic reports that are returning after their forced hiatus. What am I getting at, you might ask? It's hard to imagine just how big and bureaucratic the US government is. The agencies that collect and distribute economic data have infinitely more employees than you or I would ever hire if charged with the task of collecting the same data. Only a small and noble percentage of government employees truly care about the far-reaching implications…(read more)

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MBS Day Ahead: Retail Sales is Back! Will Traders Pretend Nothing Changed?
MBS Day Ahead: Retail Sales is Back! Will Traders Pretend Nothing Changed?

MBS RECAP: Bonds Lose Ground on Shutdown Deal Hopes and Inflation Data

Posted To: MBS Commentary

At first glance, this morning's weakness was all about the Consumer Price Index (CPI)–the most widely-followed inflation report. In order to make a case for CPI causing the weakness, we'd have to assert that a core year-over-year reading of 2.2% versus a forecast of 2.1% was significant, even as monthly headline inflation missed its forecast by the same amount. Whether or not you're following me here, I'll just put it simply: it strains credulity to assign the blame for today's weakness strictly to the inflation data. It just wasn't a big enough beat, and this hasn't been a report that's merited this sort of reaction in the past several months. Looking for other explanations quickly reveals 2 other suspects at the scene of the crime (the 8:35-8:35am timeframe…(read more)

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MBS RECAP: Bonds Lose Ground on Shutdown Deal Hopes and Inflation Data
MBS RECAP: Bonds Lose Ground on Shutdown Deal Hopes and Inflation Data

Highest Mortgage Rates in a Week After Today's Move

Posted To: Mortgage Rate Watch

Mortgage rates hadn’t changed much over the past few business days, even though they arguably should have moved a bit higher yesterday. That made today’s adjustment slightly more abrupt. Why was there an adjustment? Mortgage rates are based primarily on the trading levels in the bond market. In turn, the bond market takes cues from a multitude of factors big and small. Among the biggest considerations for bonds are the various regularly scheduled economic reports. Among those reports, inflation data is traditionally very important to bonds. And finally, among inflation data, today’s Consumer Price Index is probably the most widely followed. Inflation didn’t jump in any major way, but the important “core” reading (which factors out food and energy) was slightly higher than expected on an annual…(read more)

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Highest Mortgage Rates in a Week After Today's Move
Highest Mortgage Rates in a Week After Today's Move

MBS Day Ahead: How Inflation Matters in The Bigger Picture

Posted To: MBS Commentary

This morning brings the week's first major economic report in the form of the Consumer Price Index (CPI)–one of the biggest inflation reports. Inflation has been an on-again, off-again market mover for the bond market over the past 10 years for a few reasons. That's an assertion that makes old school market watchers cringe because a big part of their worldview is informed by the inflation drama of the late 70's and early 80's. In fact, it's only really been in the past 20 years that inflation has been relatively well-behaved (i.e. holding fairly close to the Fed's 2% target). The runaway inflation seen in the 70's was such a big deal for markets that any traders who remember it (and some who simply studied it) have a hard time letting go of fear that it could return…(read more)

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MBS Day Ahead: How Inflation Matters in The Bigger Picture
MBS Day Ahead: How Inflation Matters in The Bigger Picture

MBS RECAP: Shutdown Deal Hurts Bonds, But Mostly Helped Stocks

Posted To: MBS Commentary

It's hard to say exactly where stocks and bonds would be today absent the news from yesterday night regarding a possible shutdown deal. Both sides of the market were already in the process of bouncing as of last Friday–with yesterday's closing levels acting to extend that move. The shutdown news didn't hut until after the close. It definitely had an impact, but it's impossible to say that trading levels would be very different without it. In fact, bonds lost ground at a slower pace today compared to yesterday, so at the very least, we can conclude that bonds aren't hung up about it. The last remaining unknown with respect to this shutdown saga is what, if any, reaction we'll see when the deal is finalized. There too, it's safe to say it's not going to be a defining…(read more)

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MBS RECAP: Shutdown Deal Hurts Bonds, But Mostly Helped Stocks
MBS RECAP: Shutdown Deal Hurts Bonds, But Mostly Helped Stocks