Weekly Mortgage Overview: 8/5/2024

By August 5, 2024Mortgage Overview

What Happened Last Week?

Bonds Rapidly Repricing Reality After Jobs Report

Yes, Friday was “just one” jobs report. And yes, there are many examples of subsequent reports singing a different tune in cases like this. But Friday’s astonishingly large bond rally wasn’t only about the day, nor was it only about the week. Bonds are in the process of repricing an updated reality and correcting from the uptrend in rates seen in the first 4 months of the year. This began as early as the month of May. The past few weeks have put a bit of an exclamation point on the shift with inflation data leading the charge. From there, the past few days have done the same via a combination of Powell stepping out of the market’s way and now Friday’s “food for thought” jobs data. Bottom line: if inflation falls any more and if labor market trends continue at even a slow pace in the same direction, the Fed is behind the curve on cuts and the market is trading accordingly until the data says otherwise.
Source: Matthew Graham, Mortgage News Daily 8/2/2024)

What’s on the Agenda for This Week?

Three Things

The three areas that have the greatest ability to impact MBS backend pricing this week are: (1) Geopolitical, (2) Treasury Dump and (3) Domestic Flavor.

(1) Geopolitical: The U.S. bond market has certainly benefitted from the “safety” trade recently, and this week the main momentum will come from Iran/Israel.

(2) Treasury Dump: A massive amount of debt will be dumped into the marketplace which includes the 10-year note and most importantly, the 30-year bond auction:

  • 08/06: 3-year note
  • 08/07: 10-year note
  • 08/08: 30-year bond

(3) Domestic Flavor: The most important economic release of the week is today’s release of the ISM Services PMI which had alarmingly dipped below 50 the last time around. This time it is expected to climb back above 50. It was reported at 53.8, beating expectations. Wednesday afternoon’s Consumer Credit will get a lot of attention from bond traders as well.

Market Wrap-up

Domestic Flavor

Service Please: The July ISM Non-Manufacturing (Services) PMI bounced back from a very weak June to a reading of 51.4 vs estimates of 51.0. The Employment Index was 51.1 vs estimates of 46.5 and Prices Paid were 57 vs estimates of 55.8. Really the Prices Paid was very inflationary and negative for bonds.

On Deck for Tomorrow

Reserve Bank of Australia, 3-year Treasury note auction, Trade Balance.