This is Matt Graham with the MBS Live market update. Last week was holiday shortened and fairly light on econ data until the very end. Treasuries and bonds in general started the week on a stronger note as 10 year yields made their way down toward the 4.0 technical level and technical analysts would say that what happened next was a classic resistance bounce at that level. Indeed, for the next two days, yields pushed gradually higher in a linear pattern that is typical of such technical bounces. But there’s really never any way to confirm that is what is driving trade. It’s more of an observation that helps frame recent market movement in some sort of organized way. To be sure though, the economic data did not have any teeth. ADP weekly jobs came out first thing on Tuesday. That’s really no longer a market mover. The National Association of Home Builders released Builder Sentiment on the same day at 36 versus 38. That’s a series that continues to kick along an all-time low range with very little volatility. Sort of depressing to look at the following day. We had durable goods come in at negative 1.4% versus a positive. 5.4 the previous month. That seems like big news, but the expectations were for a negative 2% reading. And in addition, the core durable goods, which is non-defense capital goods orders, excluding aircraft, came in at 0.6 versus a 0.4 forecast, moderately economically bullish in that sense. Industrial production also up. 0.7 versus 0.2 previously, but the market didn’t really have any big reaction to that, nor did it react to the FOMC minutes later that afternoon. And that’s not a surprise considering the Fed can’t really say too much. That is new and exciting these days. Jobless claims fell on Thursday to 206K versus two 205K potentially relevant because that is the reference week for the non-farm payrolls numbers that will come out early next month, but the market didn’t seem to care too much. Then on Friday morning, we had the week’s biggest day of data with the PCE price index coming in. Just a bit hotter than expected, but the unrounded numbers were just barely high enough to make the rounded numbers higher than expected. That mitigates some of the potential damage from a higher inflation reading. The more interesting data that was also out at 8:30 AM the same morning was GDP, which came in at 1.4% versus a 3% forecast and 4.4% previous reading. That sounds like a big drop and like big news, but the bond market will tell you that it was not because the bond market didn’t really react. Reason being the big drop happened almost exclusively for. Technical accounting related adjustments. For instance, even the Bureau of Economic Analysis pointed out that the way that they measure labor productivity among federal workers during a government shutdown contributed almost a full percentage point of decline in GDP. Then the previous days jump in the trade gap also made GDP look weaker than it was, even though that jump in the trade gap signified, economic bullishness in and of itself. Remember that we had a big positive adjustment in GDP previously when the trade gap contracted. And we also pointed out that was a technical adjustment that made GDP look bigger than it was. This is just things coming back in the other direction. The markets really didn’t care and really didn’t move much. The only thing that really got markets moving last week was the Supreme Court news about. The Trump tariffs being struck down and then there was more volatility later in the afternoon when Trump announced some replacement tariffs. That’s complicated to make sense of exactly how that impacts the bond market. But one of the most simple concepts is that of issuance. If tariffs aren’t being collected. Then it implies higher net treasury issuance, all other things being equal. Higher issuance is bad for bonds, all other things being equal As such, it’s pretty easy to reconcile why the first move for treasury yields was toward higher levels. But there is a question of refunds for tariffs that have already been collected, whether those will be compulsory or whether. Importers will have to go to trade court to collect those. The nature of the replacement tariffs and those refunds will dictate what the ultimate outlook is for treasury issuance and the bond market decided to wait to see where the chips fell before overreacting on Friday. And that looks to be a good thing this morning as bonds are in stronger territory to start the week. There’s not much econ data yet again this week. That leaves us somewhat susceptible to geopolitical headlines and further developments on the trade front. And as far as mortgage rates are concerned, this little bit of extra oomph that we’re starting the week with has resulted in the average top tier 30 year fixed rate falling back to 5.99% for the second time in more than three and a half years. Matching the level briefly seen on January 9th before rates bounced in the afternoon. 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.