Weekly Mortgage Overview: 11/4/2024

By November 4, 2024Mortgage Overview

What Happened Last Week?

Why Bonds Tanked Despite Super Low NFP

Nonfarm Payrolls (NFP) came in at 12k versus a median forecast of 113k, and a previous reading of 254k. If those were the only facts you knew, on almost any other jobs report day in the history of jobs report days, you’d be well advised to bet heavily on a bond rally. The fact that bonds tanked can only be explained by an unknown combination of two things–maybe 3. We’re all already familiar with bonds generally weakening ahead of the election. That could be an ongoing factor behind Friday’s weakness. But there’s also some nuance in the jobs report if we agree that the payroll count was artificially distorted by temporary events. Lastly, ISM prices rose to the highest levels of the year. This could have some traders thinking “what if inflation has another bounce like it did in early 2024?” This might seem like a longshot, but bonds were still in positive territory by the time ISM came out.
Source: Matthew Graham, Mortgage News Daily 11/1/2024)

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) The Talking Fed, (2) Central Bank Palooza, and (3) Geopolitical.

(1) The Talking Fed: The Fed’s Interest Rate Decision and Policy statement will be on Thursday (typically it’s on a Wednesday but moved due to the election), followed by a live presser with Fed Chair Powell. The bond market is currently pricing in a 25BPS move lower. This is NOT a meeting where they release their Economic Projections (dot plot).

(2) Central Bank Palooza: There are a couple of Central Banks meeting this week with the focus on the Bank of England which is expected to cut rates by 25BPS.

(3) Geopolitical: The election on Tuesday could have a dramatic impact on pricing.

Treasury Dump

This is a big week for auctions.

  • 11/04: 3-year note
  • 11/05: 10-year note
  • 11/06: 30-year bond

Market Wrap-up

Rosie the Riveter: September Factory Orders slumped by -0.5% versus estimates of 0.4%, plus August was revised lower from -0.2% all the way down to -0.8%.

Treasury Dump: Three days of dumping debt into the marketplace kicked off with today’s shorter term 3-year note. $72B went off at a high yield of 4.152% (versus 3.878% in October and the highest since July) and a bid-cover-ratio of 2.60.

On Deck For Tomorrow: Trade Balance, ISM Services PMI, 10-year Treasury Note auction, U.S. elections.