[Matt] This is Matt Graham with the MBS Live Market Update. Last week was a solid one for the bond market. Recall that it was the week after Thanksgiving and on the Friday after Thanksgiving bonds had rallied rather sharply and that's the sort of thing we would always take with a grain of salt at that particular time of year, especially on a post Thanksgiving Friday, that is also the end of the month because month end trading can also create serendipitous volatility for the bond market. But in this instance, it was more prescient than anything because Monday saw bonds continue to operate in the same territory and 4.17 emerged as a sort of floor for the 10 year yield throughout the week, all the way until Friday's jobs report helped fuel an additional rally. Before that, we had a series of economic reports that were generally bond friendly. Kicking off on Monday, ISM manufacturing was close to in line with forecasts, but the prices paid component was much lower than forecast. That was helpful. Tuesday's job openings data was a little bit less friendly for bonds coming in higher than expected both for the job openings component as well as the quits component anytime those are higher than previous or expected. It generally puts upward pressure on rates Tuesday was no exception but the damage was fairly mild Wednesday was ISM non-manufacturing day that came in much weaker than expected and helped push rates lower You not necessarily significantly, but very noticeably in connection with the data, several Fed speakers were making the rounds during this time of week, including Fed Chair Powell that same afternoon, all had some iteration of optionality expressed for the upcoming Fed meeting, basically saying, Hey, guys, we know that we've been in a little bit more hawkish on the inflation and the rate cut outlook, but we could still totally be cutting rates at the upcoming meeting. It just really depends on the data. So, in that sense the same old message, but a refreshing no whammies kind of thing for the bond market on Wednesday afternoon after rallying earlier in the day. On the ISM data Thursday was a bit of a lull in terms of data. We did have jobless claims. It wasn't a big market mover at the time, so it was really on to the jobs report on Friday, which was deceptively weak because it came in at 227 versus 200, which is the sort of number that we would normally associate with weakness in the bond market at the very least, a solid labor market that would not lead to a bond market rally. That said, it led to a bond market rally. Why would it do such a thing? First off, the rally was not immense. It was, again, noticeable, but not very big. But nonetheless, it was a little bit counterintuitive relative to the headline. First thing that we can look at is the absence of any major revision to the previous month's reading of 12,000 payrolls. It was only revised up to 36. So, between the revision and the current month those who were expecting a big rebound between those two months due to things like hurricane impact jobs and workers returning from strike, they were disappointed from a labor market standpoint, because there was not a resurgence of payrolls as far as the NFP measured. Beyond the payroll count, the unemployment rate ticked up a little bit, and it did so with a downtick in the labor force participation rate, which is the type of thing that would normally help artificially decrease the unemployment rate. So, between the rounding of the unrounded number and the labor force participation rate, the actual upward drift in unemployment was fairly large at about two tenths of a percent or slightly higher. And that sort of rounded out a lackluster reading on this particular jobs report and one that helped the bond market extend. It's rallying and break below that 4.17 level in 10 year treasury yields. Coming to the current week, we're back above that level. Maybe that has to do with end of week positioning, helping fuel a little bit of last week's late rally. Either way not necessarily a big deal. We are waiting for data and for the Fed to set the tone for the end of the year. As far as this week, the data that has the biggest chance to set the tone is the CPI on Wednesday, consumer price index, and maybe to a lesser extent, PPI, the producer price index on Thursday, both measures of inflation and likely to have the biggest impact of any scheduled reports this week. We also have treasury auctions going on in the background that could serve as a supporting actor to help flesh out this week's bond market momentum. Either way, it's nice for yields to be about 30 bits lower than they were a couple of weeks ago. Mortgage rates quite a bit lower as well as levels in over a month and a half. And they could get even better if the data happens to be bond friendly yet again, this week, that's going to do it for this week.
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.