This is Matt Graham with the MBS Live Market Update. The last two weeks have been heavily afflicted by holiday trading vibes, specifically. Volume and volatility and liquidity tend to drop sharply during the second half of December, and we can largely ignore any. Minor volatility that occurs inside prevailing ranges, assuming that the market really isn’t firing on all cylinders until the first full week of January. Indeed, we did not see any movement outside the very narrow range of 4.1 to 4.2 in 10 year treasury yields The whole yield curve operated in a narrow range. Mortgage rates did the same, and notably, mortgage rates actually outperformed 10 year yields. There is a theory for that has to do with Fannie and Freddie buying more MBS, but the real reason has to do with the shape of the yield curve and a steepening of the curve that favors shorter duration bonds. This has really exploded since the Fed’s announcement in December that talked about the reserve management purchases targeting the short end of the yield curve. They’ve already begun buying quite a bit of short term bonds to manage liquidity levels and reserve balances. This has helped the short end of the yield curve move lower in yield relative to the long end. And MBS tend to. Have a shorter duration than 10 years, even though the 10 year treasury is often used as the preferred benchmark for mortgage rates beyond the 4.1 to 4.2 range, we’ve had a narrow range for the last four months, and it’s only slightly wider at 4.0 to 4.2, and that is the longest time that we have spent in such a narrow range since the middle of 2021. What changes this? What’s going to cause a breakout? We never know ahead of time, but we know that the market is definitely firing on all cylinders. This morning. Volume has already surpassed most of the past few full trading sessions. We wouldn’t necessarily view it as a fair comparison against the end of the month trading session because that brings in a lot of volume due to month end, year end, quarter end position squaring and the compulsory buying that money managers need to do to match durations to various indices. But that’s neither here nor there. The point is. Volume is back, traders are back. The market is the bond market. Once again, that means that the focus turns to relevant ECON data and the data this week is. Hotly anticipated because it is expected to be cleaner than last month’s data, especially the jobs report on Friday recall, we had an interesting jobs report in December that showed a surprisingly big uptick in the unemployment rate. Traders are curious to see if that sticks around and what else happens in that report this Friday, and they’re hoping or assuming, or a combination of the two, that the data will be a little bit more representative of the underlying sample. Before that we will get ISM non-manufacturing and jolts the job openings and labor turnover survey on Wednesday. Those would be the main supporting actors in this week’s cast of data. And we already had ISM manufacturing this morning and although that can sometimes be a market mover, it didn’t have a big impact today. It was, slightly weaker than expected. And the anecdotal comments that are published by ISM were also fairly gloomy largely reflecting un uncertainty and a slowdown in hiring and worsening outlook due to uncertainties. Surrounding the tariff situation. On a final note, because it’s probably a topic of curiosity today, people are wondering if the news out of Venezuela over the weekend is having an impact on bonds, and the answer is a resounding no. There wasn’t any discernible. Surge in volume or volatility in the overnight session. And bonds actually opened right where they closed at the beginning of overnight trading. So no major reaction there. Although there is some volatility in Forex with the dollar weakening and that’s where another reminder that the valuation of the dollar does not have a direct impact on interest rates. They can definitely move. Together at times, but that’s usually because they’re sharing a third variable that’s affecting both of them, rather than one being a domino for the other. That’s gonna 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 MBS Live!
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.