In the week just passed, the bond market sold off at the fastest pace since the June 2013 taper tantrum.  That's a relatively impressive feat at first glance considering the taper tantrum provided a massively obvious, once in-a-lifetime selling cue whereas last week arguably only had a few moderately important negative indicators for bonds.  But consider that yields had already risen 60bp from recent lows BEFORE the taper tantrum sell-off compared to roughly 10bps this time around and things make more sense.  The more appropriate comparison would be with early 2015 where  yields had been trending lower at a linear pace for more than a year before a last-minute acceleration of the rally and a subsequent corrective bounce in early February.  Long story short: the nature of the 2019 rally and especially of August's acceleration in buying demand is the key culprit behind September's corrective bounce. In the week ahead, we'll continue pondering the disposition of this correction.  Is this just the beginning of a bigger move back toward higher rates, a pressure release for a market that wants to continue toward lower yields, or a resetting of the board for a game that can still go either way?   While I'll be the first to tell you that interest rates in the US will definitely hit new all time lows during the next recession (or sooner), I think the neutral assessment is the only one that makes sense (board reset, new game, undecided result).  Quite simply, the economy either gets a mid-90's style second wind after some mid-cycle Fed rate cuts and the eventual de-escalation of the trade war, or a recession happens either way. This week's Fed announcement won't be the deciding factor in the bigger-picture narrative, but it still has plenty of power to create volatility in the short term.  Think of it like this: the Fed is like a storm chaser following the unpredictable storm of economic momentum.  The market along for the ride with the Fed in their storm-chasing plane/train/bus/whatever.  Nothing the Fed does is going to change the course of the storm, but the way in which they pilot their storm-chasing vehicle has a profound effect on the market's experience. The rate cut announcement is on Wednesday at 2pm.  A rate cut is currently seen as 100% likely and therefore, not a market mover.  Any major market reaction at 2pm will be a factor of the Fed's updated rate projections or notable verbiage changes in the announcement itself.  Then at 2:30pm, Powell's press conference has the same potential to prompt a volatile response.  Bottom line : markets want to know if the Fed is going to drive toward this storm optimistically (i.e 1 or 2 more cuts and that's it) or pessimistically (more and more cuts unless conditions improve).  The pessimistic Fed would almost certainly end the current bond market correction whereas the optimistic Fed could push rates even higher in the short term.  In that scenario, the selling would run its course fairly quickly and then wait for economic data and other fundamentals before deciding on the next move.

September 16, 2019 Download our Mobile App: Download our Mobile App: MBS Commentary MBS Live Day Ahead: It's Still a Correction Unless The Fed Says Otherwise In the week just passed, the bond market sold off at the fastest pace since the June 2013 taper tantrum.  That's a relatively impressive feat at first glance considering the taper tantrum provided a massively obvious, once in-a-lifetime selling ... (read more) Rob Chrisman Broker Products; Vendor Developments; Rate Volatility Increase Music fans are saddened by the recent news of the deaths of Eddie Money and the Cars’ Rick Ocasek. In our industry, the news late last week that Black Knight, Inc. has acquired Compass Analytics, LLC , turned a lot of heads. There is no reason ... (read more) Mortgage Rate Watch Mortgage Rates' Week Goes From Bad to Worse Mortgage rates were already having their worst week since 2016 as of yesterday afternoon. Rather than help to heal some of the damage, today's bond market momentum only made things worse . Whether we're looking at 10yr Treasury yields a broad indicat... (read more) Housing News Tariffs are Creating a Perfect Storm for Builders The California Building Industry Association (CBIA) is calling the Trump Administration tariffs the "perfect storm" for the state's already troubled housing industry. The Association says tariffs, which have impacted the price of appliances, certain ... (read more) Housing News Are Lenders Anticipating a Slowdown? Available Credit Falls 3.9 Percent The Mortgage Bankers Association (MBA) says its Mortgage Credit Availability Index (MCAI) suffered its largest decline in eight months in August. The Index fell 3.9 percent to 181.7, MBA says this indicates that credit is tightening. The MBA announce... (read more) Housing News Fraud Risk Decreases on a Wave of Refi Activity Mortgage application fraud declined in the second quarter of this year. CoreLogic's report on the incidence says that one out of every 123 mortgage applications submitted during the quarter (0.81 percent) had a fraudulent component compared to one in... (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 Bloomberg Fannie Mae and Freddie Mac Won't Go to Market Until End of 2020, FHFA Director Says - Bloomberg Video CNBC Expectations suddenly are rising that the Fed might not cut interest rates this week NAR - Realtor.com Millennials Are Resorting to This Questionable Tactic to Buy Their First Homes Calculated Risk Blog Update: Predicting the Next Recession Bloomberg ECB Can Do QE for Extended Time Before Limits Hit, Lane Says CNBC Bet on a bond bounce, says top technician Reuters U.S. envoy tells U.N. Security Council indications Iran behind Saudi oil attacks Calculated Risk Blog Hotels: Some Analyis of Short Term Rentals; Occupancy Rate Decreased Year-over-year Reuters Saudi Arabia shuts pipeline to Bahrain after oil outage: trade sources Calculated Risk Blog NY Fed: Manufacturing "Business activity was little changed in New York State" Reuters EU's Juncker to PM Johnson: Britain must make proposals to replace backstop CNBC Facebook is reportedly meeting with the Fed and other central banks to discuss libra CNBC Trump says US locked and loaded' after attack on Saudi oil supply

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