This is Matt Graham with the MBS Live Market Update. Last week we talked about how all bets were off heading into Friday’s big jobs report. It’s not uncommon to hold the jobs report up on a pedestal as the most important economic report as far as the bond market is concerned. That doesn’t mean it always creates a big reaction in bonds, but it means it always has the highest potential to do and last week we saw it capitalize on that potential, but it did so in an interesting way. We’ll get to that in a second and talk briefly about the things that happened earlier in the week. They were relatively limited compared to the jobs report, but they would’ve been interesting. Otherwise, there was an accelerated treasury auction schedule due to the calendar timing of month end, and we saw a fairly strong demand for all of the auctions, but especially for the seven year auction on Tuesday, it didn’t create exceptionally big reaction. In the bond market, but it was reassuring in the bigger picture. Nonetheless, home prices continued to slide, not in an alarming way, but in a way that suggested a little bit of stagnation in home price appreciation. Job openings fell slightly and that provided a little bit of a boost on Tuesday morning. Wednesday’s GDP data was mixed depending on whether we’re talking about the headline, which came in at 3% versus a 2.4 forecast, or the component that more and more people are talking about these days. Real final sales to domestic purchasers, which is like a core GDP that focuses on domestic spending and is thought to be a little bit more forward looking. That metric continued to fall and helped the market react in a less negative way to the headline GDP number Wednesday afternoon we had the fed rate decision, although there was no decision to be made because there was zero chance of a rate cut at this meeting. The focus instead turned to Powell’s press conference where the market generally didn’t get quite as much-ishness as they’d hoped for from Powell. That made Fed Fund’s futures move toward higher rate expectations for the end of the year. It wasn’t a big move in the bigger picture, but an unfriendly one. Midweek Thursday’s data. Not too eventful core PCE inflation came in on target. The unrounded number was a little bit lower than expected, and there was no major reaction in the bond market. Then Friday’s jobs report hit came in at 73K versus one 10K forecast in and of itself, that would probably be relatively good for rates, but that wasn’t the thing that did the trick. Rather, it was massive revisions to the previous two months, totaling 258,000 jobs that. Were removed from what we previously thought would be there and 253,000 versus the initial releases. Either way, huge revisions. Not the biggest we’ve ever seen, but some of the biggest that we’ve seen in the past few years, and the bond market reacted swiftly with a massive rally in the short end of the yield curve. Two year treasuries moved, almost 30 bips lower. 10 year treasury is almost 20, bips lower, and MBS obviously surged as well. Mortgage rates fell to their lowest levels since either early April or mid-October, depending on the lender, and it immediately caused a bit of a firestorm in terms of political backlash with Trump firing the director of the BLS. And making everybody talk like an armchair quarterback when it comes to understanding S’S methodology on collecting NFP data. We won’t really wade into that too deeply other than to say that revisions are commonplace and published, and these aren’t the biggest ones we’ve ever seen. The methodology is also published and the market reacts to the non-farm payrolls data because that is the most authoritative. And most robust effort to collect employment data in the us And if there was a better thing for the market to trade, they would trade it. And if the market was upset about the revisions or didn’t trust the revisions, they wouldn’t trade it. And that’s really the best place to look unless you have an advanced mathematics degree and can understand all of the equations and methodologies that are published by the BLS as far as the week ahead. Nothing could possibly be as interesting as what we just lived through, but there are a few things that might catch the market’s attention. Tuesday’s ISM, non-manufacturing data is the headline. As far as scheduled Economic reports expected to come in a little bit hotter than last time, but still fairly tepid at 51.5. We have another treasury auction cycle with threes, tens, and thirties. That’ll be interesting in light of the fact that the treasury’s quarterly refunding details are behind us. And last but not least, given that it is early August, there is an ongoing potential for trade related headlines to cause volatility that does not adhere to any specific schedule. 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 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.