This is Matt Graham with the MBS Live Market Update. Last Monday, we discussed an uncommonly high level of quarter-end trading volatility as being a key contributor to a surprise rate rally that happened on June twenty-fourth. We got another dose of quarter-end trading last week, but this time, unfortunately, in the opposite direction. As we know, bond market drama creates rate drama because rates are directly based on bonds. Due to the immense size and complexity of the bond market, and of course, the broader financial market, and because trading strategies can vary based on who’s doing the trading, there is no satisfying way to measure exactly why things happen the way they do at quarter end. What we do know is that a massive amount of money changes hands in a very short time window, with a lot of last minute settlement taking place right up to the end of quarter cutoff. There’s also quarter-end trading that begins impacting trading levels several weeks in advance, but it was the last minute stuff that hit the bond market on Tuesday. That resulted in Tuesday’s rates jumping quickly higher for no obvious reason as far as the econ calendar or headline news was concerned. Wednesday added a bit of an aftershock as mortgage lenders got caught up with Tuesday’s volatility. As we know, some lenders don’t fully account for all the volatility in a trading day if it happens late enough in the day. The selling pressure was partially offset by Fed Chair Warsh’s comments at the ECB’s Sintra Forum. He said inflation expectations were falling, in a nutshell, and markets viewed that as dovish. But most of the benefit was reserved for the shorter-dated bonds that more closely align with Fed funds rate expectations. All told, this took the average thirty-year fixed rate an eighth of a point higher on the week as of Wednesday. What happened next was a mixed blessing, depending on which side you root for. Fans of strong jobs growth got bad news on Thursday morning with June’s job count coming in at 57K, short of 110K median forecast. But as is ever the case, bad news for the labor market is generally good news for rates. Bonds improved following the data, and mortgage rates managed to recover almost half of the ground lost earlier in the week. Nonetheless, the week ended with the thirty-year fixed rate up 0.07 on average versus the previous week. Notably, the weekly survey-based data from MBA and Freddie Mac showed rates being lower on the week, but that’s because their methodologies had not yet captured the full impact of Wednesday’s rate spike. Freddie technically counted Wednesday in its survey, but its impact is diluted because it’s averaged with the preceding four business days. Bottom line, rates were higher last week, but thankfully still not quite as high as they were in early June or mid-May. The present week brings a smattering of econ data, not nearly as robust as last week, but we’ll also get minutes of the most recent Fed meeting and a Treasury auction cycle. The market continues pricing in a higher likelihood of a Fed rate hike by the end of the year and possibly two hikes by early next year. But much remains to be seen as far as how the inflation narrative evolves. So far, bonds are off to a flat start with little to no impact from this morning’s as expected ISM Services Index. 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.