In today’s mortgage market update, we observed modest gains as MBS (Mortgage-Backed Securities) displayed some positive movements, with the 6.0 coupon rising by 8 basis points and the 5.5 coupon by 2 basis points. While the initial response to economic data was subdued, Treasuries eventually saw an improvement. Initially, MBS lagged due to liquidity concerns, but these issues have since been addressed.

Economic indicators showed some interesting trends. Jobless claims came in at 205k, beating the forecast of 215k, and the Philly Fed Index was at -10.5, surpassing expectations of -3.0. On a broader scale, third-quarter GDP was revised downward from 5.2% to 4.9%, accompanied by a crucial development in inflation numbers, with the core PCE rate hitting 2%, aligning with the Fed’s target.

Philadelphia Fed President Patrick Harker voiced support for lower interest rates, albeit with a cautious approach. Meanwhile, the markets are experiencing lower trading volume due to the year-end holiday season, with the bond market closing early and remaining closed on Christmas Day.

Amidst these developments, discussions about the Fed’s shift in rate outlook have surfaced. We delve into questions surrounding the Fed’s consideration of politics, the surprise factor in its pivot, and whether it’s justified. Notably, the pivot began in mid-October, and the Fed Funds Rate, at 5.375%, remains restrictive. This shift appears less surprising when compared to previous rate projections.

In summary, today’s mortgage market displayed stability and modest gains, driven by economic data and discussions about the Fed’s rate outlook. Stay tuned for more updates as we closely monitor these trends.