In the day just passed, bonds held their ground after overnight weakness and eventually moved back into positive territory.  That happened in spite of an ongoing correction higher in stocks (notable because a stock sell-off was a centerpiece of the previous day's rally).  In other words, bonds were doing their own thing for their own reasons. In the day ahead, bonds will continue to do their own thing for their own reasons.  In fact, this is already painfully evident overnight.  The pain is made all the more painful by analysts (armchair or otherwise) tripping over themselves to explain why we've had another 10bp rally in 10yr yields overnight.  The following list of potential market movement scapegoats has support from twitter crackpots as well as intelligent and thoughtful market analysts--several of whom I'd consider as some sort of mentor.   Another weak Yuan-setting session from the People's Bank of China overnight Weak German Industrial Production data late last night Surprise Central Bank moves in India and New Zealand (and Thailand?) I like to keep an open mind, and I REALLY like to ferret out cause&effect when it legitimately exists, but that's sadly not the case with anything on this list.  Let's examine: Chinese Yuan is always going to be a leading suspect in the current rally cycle.  It was at ground zero last week and then again 2 days ago when things got even crazier.  Now today, overnight reports make the connection sound clear: the Chinese central bank just set a weak level for the Yuan just like it did early Monday morning.  This must be it, right? Nope... there's perhaps a bit of incidental correlation here, but no causality.  How about the Central Bank rate cuts in New Zealand and India?  These are getting a ton of press overnight.  First off, I have to laugh...  New Zealand?  Are you kidding me?  Nothing against my Kiwi buds, but they're not now, nor have they ever been relevant market movers.  When analysts start bringing NZ into the scapegoat discussion, it's clear that the straw-grasping has begun in earnest.  India's not much more compelling, and in any event, didn't correlate at all with domestic markets. So where were we?  Weak European data and/or EU bond rally leading the way?  A general EU rally and subsequent spillover to US trading is probably the "best of the worst" when it comes to red herring scapegoats.  Hilariously, the European analysts I'm reading this morning are generally using yesterday's US bond rally as their own scapegoat.   I didn't even highlight the German econ data on the chart because it didn't garner a reaction at all.  The big drop in Bund yields around 4am (without any drop in Treasury yields) is the most interesting part of the chart because that's simply the EU bond market open--new liquidity coming into the market... traders waking up and saying to themselves "you know what... I think I better buy some more bonds today."  The next rectangle to the right is the American version of the same story.  The US rally kicked into higher gear shortly after traders' alarm clocks started going off in the US. This then, is the best and perhaps the ONLY way to intelligently talk about bond rally motivations.  Traders are waking up (literally and figuratively), taking a look at the overall lay of the land, and more of them are deciding it makes sense to buy versus sell.  I know that seems horribly pedantic, but sometimes traders are just trading for reasons you and I don't get to know.  Sometimes it's momentum/technicals.  Sometimes it's the simple fact that betting against the bond market is not an option.  Sometimes it's compulsory trading due to the hedging process surround corporate bond issuance or to the money management process whereby investors have to adjust holdings based on client deposits and redemptions.   One thing's for sure, we can't rely on seemingly important calendar events to be leading market movers in this environment.  The next big move will come completely of its own accord or due to an unscheduled/unexpected news headline.  Between now and then, all we can do is us a technical framework to set up defensive yield ceilings with the goal of identifying a significant threat to epic rally of 2019.

August 7, 2019 Download our Mobile App: Download our Mobile App: MBS Commentary MBS Live Day Ahead: Don't Trust Anyone Who Tells You What's Moving Markets In the day just passed, bonds held their ground after overnight weakness and eventually moved back into positive territory.  That happened in spite of an ongoing correction higher in stocks (notable because a stock sell-off was a centerpiece of ... (read more) Mortgage Rate Watch Lowest Rates Since November 2016 Mortgage rates hit their lowest levels since November 2016 late last week and they've proceeded to set a new long-term low each day since then. Today was no exception. That's fairly surprising at first glance, considering the underlying changes in th... (read more) Housing News Patch Expiration Will Hit Low Income and Minority Borrowers and Neighbors CoreLogic has been running a series of articles in its Insights blog attempting to quantify the potential impact of the expiration of the so-called GSE Patch. The Patch provides an exception to the 43 percent debt-to-income (DTI) ratio limit of the Q... (read more) Housing News Trade War Sparks Another Refinance Boom A sharp drop in mortgage rates helped the Market Composite Index break a 5-time losing streak during the week ended August 2. The Mortgage Bankers Association (MBA) said its Index, a measure of mortgage application volume, rose 5.3 percent on a seaso... (read more) Rob Chrisman CRM, Broker Products; 2nd Mortgage and Conv. Conforming Trends For me the first three weeks in August includes time in California, Washington, Nevada, Tennessee, and Michigan. Did you know that roughly 80% of new houses being built are in the South or West? Freddie and Fannie know a lot about lending on new home... (read more) Housing News Prices are Still Rising, Especially for Low-Cost Homes CoreLogic said on Tuesday that its Home Price Index (HPI) for June increased by 3.4 percent on an annual basis. Rather than the steady decline in appreciation that has been evident for about a year, percentage gains are beginning to bounce around. Th... (read more) Mortgage Rates 30 Yr. Fixed Rate 6.67% -0.05% Rate Change Points Mortgage News Daily 30 Yr. Fixed 6.67% -0.05 0.00 15 Yr. Fixed 5.91% -0.05 0.00 30 Yr. FHA 6.20% -0.02 0.00 30 Yr. Jumbo 6.80% -0.04 0.00 7/6 SOFR ARM 6.33% 0.00 0.00 30 Yr. VA 6.22% -0.01 0.00 Updates Daily - Last Update: 6/30 15 Yr. Fixed Rate 5.91% -0.05% Rate Change Points Freddie Mac 30 Yr. Fixed 6.77% -0.04 0.00 15 Yr. Fixed 5.89% -0.07 0.00 Updates Weekly - Last Update: 6/26 Rate Change Points Mortgage Bankers Assoc. 30 Yr. Fixed 6.88% +0.04 0.63 15 Yr. Fixed 6.11% -0.03 0.74 30 Yr. Jumbo 6.88% +0.07 0.60 Updates Weekly - Last Update: 6/25 MBS / Treasuries UMBS 30YR 5.5 100.07 +0.26 Price / Yield Change MBS UMBS 5.5 100.07 +0.26 UMBS 6.0 101.68 +0.17 GNMA 5.5 100.19 +0.19 GNMA 6.0 101.50 +0.14 Pricing as of: 6/30 6:48PM EST 10 Year US Treasury 4.2246 -0.0567 Price / Yield Change US Treasury 2 YR Treasury 3.715 -0.035 5 YR Treasury 3.804 -0.031 7 YR Treasury 3.990 -0.045 10 YR Treasury 4.225 -0.057 30 YR Treasury 4.776 -0.055 Pricing as of: 6/30 6:48PM EST Latest Video January new home sales drop nearly 7% Bank of America CEO: Loan demand showing consistent growth UK parliament votes on options to delay Brexit January new home sales fall short of expectations, down 6.9 percent Around the Web NAR - Realtor.com Consumer Watchdog Blasts Government's Loan Sales Program: No Rules' to Help People Save Their Homes Calculated Risk Blog Las Vegas Real Estate in July: Sales down 2% YoY, Inventory up 71% YoY Calculated Risk Blog Mortgage Rates and Ten Year Yield CNBC Housing sentiment hits record high, as bidding wars vanish CNBC Central banks around the world are surprising markets with aggressive rate cuts: Here's why Bloomberg Kudlow Says U.S. Still Expects September Talks, But Will China Show Up? Bloomberg Trade Woes May Crimp Rising Consumer Loan Demand, Analysts Warn Bloomberg Treasury Curve Signals Disappointment With Bullard's Message CNBC Fed's Bullard says it will take time to gauge the effects of the interest rate cut Reuters Wall St. rebounds, up 1% after China moves on yuan Bloomberg U.S. 10-Year Yield Could Hit 1% on Trade War, BofAML's Ciana Says - Bloomberg CNBC Mortgage rates are at a 3-year lowhere are 3 questions to ask before you refinance Calculated Risk Blog BLS: Job Openings "Little Changed" at 7.3 Million in June

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