This is Matt Graham with the MBS Live Market Update. In most ways, August has really been the month of the jobs report, which came out on the first day of the month and has dictated the range that we’ve seen since then. No other economic data has really been interesting or relevant in terms of bond market movement. When the jobs report came out and specifically when the revisions were revealed to be much lower than initially reported, it sent yields lower but still within a fairly narrow range. In the bigger picture, that narrow range is centered on something in the neighborhood of 4.34 in terms of 10 year treasury yields, and we are waiting on the next big shoe to drop in order to determine whether or not rates will move out of this narrow sideways range that would involve something in the neighborhood of 4.1 or over 4.4 in terms of 10 year treasury yields. But in terms of mortgage rates, we’re seeing some outperformance likely due to the fact that tariffs and treasury supply weigh on the treasury side of the market more than on the MBS side of the market. MBS, of course, determining mortgage rates. With that in mind, mortgage rates hit their lowest level since last October, last week, and held in a very narrow range around those levels for the entirety of the week, regardless of any of the economic data. The only significant report that came out was the ISM non-manufacturing index. ISM services, PMI, and it was weaker in every category except for the price component, which moved up to another post pandemic high, or we should say post COVID lockdown high because prices did spike higher in initial response to COVID lockdowns, but had then fallen off when the economy normalized, they’d been moving up steadily and just hit another new high. So that price pressure puts upward pressure on treasury yields and mortgage rates. The economic weakness conveyed in the rest of the ISM data helped to offset that and kept bonds in a fairly narrow range last week. In the current week, all eyes are on Tomorrow morning, that is Tuesday, and that is when the CPI data comes out for the previous month, this is the first big picture, national level look at price pressures and another chance to see any impacts from tariffs showing up in the official data to whatever extent that drives inflation higher, that would put upward pressure on rates fairly logically. The market’s expecting core monthly CPI to come in at 0.3 versus 0.2 last month. If that were to come in at 0.1 or 0.2 instead, that would very likely put downward pressure on rates. It would coincide with the weaker jobs numbers and make the market think that the Fed was just a lot more likely to initiate rate cuts sooner than later. If, on the other hand, tariff price pressures make the number bigger than expected that would support the Fed’s case for holding steady and waiting to see if uptick in unemployment ends up forcing their hand. Really, they’re balancing inflation data versus unemployment, and if those two things are sending the same message, it really makes it a clear cut case for fed action or inaction. By that, if we have higher unemployment and lower prices, it is a given that the Fed will be cutting rates very soon, possibly the next meeting. If inflation is higher, and if the next jobs report ends up bouncing back, then it supports a case for holding steady at the September meeting, and that meeting will become critically important in terms of digesting the Fed’s dot plot and figuring out the next move. Other than CPI this week economic data is somewhat limited. We do have producer prices on Thursday, and that’s the wholesale version of CPI. It tends to be less of a market mover and then retail sales on Friday morning. That would be the other highlight. As always, we’re looking through the headline retail sales number and inspecting the control group, which strips out the more volatile categories and as like a core retail sales number. But if we had to wait that data versus tomorrow’s CPI, we would give all of the marbles to CPI. 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.