[Matt] This is Matt Graham with the MBS Live market update. Last week continued the trend of gradual upticks in treasury yields and mortgage rates. And although 30 year fixed rate averages didn't hit the precise long term high that they had seen in the previous week, it was effectively close enough economic data wasn't necessarily to blame in a direct way. But the issue we're dealing with is that data. Continues to avoid pushing back against this rising rate trend, we saw a glimmer of hope, perhaps in last week's CPI reaction. CPI came out in line with expectations at the core level month over month at 0.3 versus 0.3. But the unrounded number was a bit lower at 0.28. A lot of times the bond market will read into that unrounded number and treat that as a way to come in higher or lower than expected when the actual tenth of a percent rounded number is right in line with expectations. Despite the initially favorable reaction to the CPI data, bonds soon reversed course and ended up at the highest levels of the week at the time. Granted, the week was only two days long at that point, but it was another example of a pattern that has been repeating fairly regularly recently where the economic data will make a certain case. Parades they'll move initially in that direction and then reverse course to head in a different direction Thursday was perhaps the most notable Example of that this week. There was not only some back and forth surrounding the economic data in the morning But additional legitimate cause and effect in the early afternoon with a talk that fed chair about gave in Dallas, as far as the data was concerned, we had jobless claims coming in a little bit stronger than expected and producer prices coming in mixed to say the least they were in line with expectations on in monthly terms and actually a little bit better if we looked at unrounded numbers. But in annual terms, they were slightly higher than expected, which would suggest that was more due to revisions than the most recent month of data. As far as driving up producer prices. Nonetheless, the producer price index is not nearly as much of a market mover as the consumer price index. And if anything, there really wasn't a huge response to data on Thursday morning. The initial response was slightly weaker, but then bonds improved into the midday hours. But that improvement was very focused on the long end of the yield curve, things like 10 year treasury yields, whereas the short end, things like two year treasury yields were not doing nearly as well. And the prevailing sentiment, which I wholeheartedly agree with, was that traders were apprehensive about what Fed Chair Powell's message would be. In a Q&A that he did at the Dallas chamber event that started at 3 p. m. Eastern pretty late in the day for a Fed chair pal to answer consequential questions. But nonetheless, it was an opportunity for him to echo. Some of the thoughts that have come up from other fed speakers this week, which if you had to distill them into a sort of general, just would be this, Hey, we were pretty aggressive in our rate cut outlook back in September. Things have changed since then in terms of data, especially the. Early October jobs report, which really caused a sea change in momentum. And now we're thinking maybe we don't need to cut rates as aggressively as we did back then. And we still think inflation is on the way down, but we acknowledge the risk that it might. Get stuck here. And if it does, then we're stuck not being able to cut rates too much more. Nobody used that many words on that specific of a focus, but that was the takeaway. And it was the takeaway from Powell as well. And he made things very simple with a comment that was essentially that the economy is not sending signals that the fed needs to be in a hurry to cut interest rates. And he said it again in a different way later in the Q and a, and the bond market clearly reacted to that. The apprehension about the short end of the yield curve was justified. And the market is increasingly pricing out previously predicted rate cuts going back to early October, the market saw the Fed being down to a 3 percent Fed funds rate by the middle of 2025. As of this morning, they see that as 4%. That's quite a big change. More than half of that happened instantly after the October jobs report. And since then, it has been a slow grind up from 3. 6 to 4 percent by mid 2025. And whether or not that pans out depends entirely on the economy and economic data coming in as far as this week is concerned, it's not a super big ticket week of economic data. And then next week will be month end and Thanksgiving, which makes things a little bit weird from a trading standpoint. But then the first two weeks of December will be absolutely critical in locking in the. Feds December dot plot is outlook for rate cuts going forward, and it could make a very big difference in whether they think that we're going to only see two or three more cuts or six more cuts before this cycle levels off and it could even be outside of those extremes, although I would argue it's probably not outside the six. Cut extreme at this point, given what's going on with economic data, all that to say it's the economy. There has been trading surrounding the election process, but it's important to keep in mind that the economic data will do more than anything to dictate the pace of market movement going forward. That's going to do it for this week. Back to you.
Matt Graham, Founder and CEO, MBS Live
Matt began as an originator in 2002. He fell in love with the idea of following MBS in real-time but felt that existing products were only scratching the surface. Thus was born MBS Live in 2007, the first-of-its-kind platform with real-time market data/analysis, and live chat with analysts, traders, and originators around the country. He is currently the Founder and CEO of MBSLive!
He's been covering bond/mortgage markets, writing commentary, alerts, and chatting with the live community every business hour of every business day ever since.
Matt also serves as the Chief of Operations for mortgagenewsdaily.com, where he is one of the industry's most respected mortgage rate experts, frequently quoted in the media. Mortgage News Daily's rate index is used as the definitive resource on day-to-day mortgage rate averages.
He lives in the Pacific Northwest with his wife and son where he enjoys skiing, fishing, coaching youth sports, playing the guitar, and more DIY projects/hobbies than he'd care to admit.