MBS are down 22 bps on the morning. Stocks losing about 20.
Bonds were gradually weaker in choppy trading overnight. UK bonds led the selling in during European hours following a higher CPI reading (0.7 vs 0.5 f’cast). MBS started in similarly weak territory, bounced a bit, and are now back at the lows, down a quarter point on the day and just over an eighth of a point from the highs. Jumpy lenders who priced at the highs (9am or a few minutes earlier) could already be considering negative reprices.
Powell’s scheduled remarks are possibly adding to the weakness, but the testimony itself starts at 10am ET.
The homebuilders have been on a tear this year, despite all of the pain in the mortgage market. The S&P SPDR Homebuilder ETF (XHB) has outperformed the S&P 500 by 12% YTD. Homebuilding is an early-stage cyclical industry, which usually leads the economy out of a recession. Investors are piling into the homebuilding stocks in anticipation of a recession and rate cuts. Note homebuilder KB Home reports after the close today. The Atlanta Fed bumped up its Q2 GDP Now estimate to 1.9% on the strong housing starts number.
MBS are right at the Fibonacci S2 break on the charts. If it can hold there is another close ceiling at 99.906. If it does not, next support is 98.716
After a clear rejection of the 3.72% floor in 10yr yields overnight, bonds continued drifting into negative territory ahead of Fed Chair Powell’s congressional testimony today. As the Q&A portion got underway, it soon became clear that there would be “no whammies.” In other words, Powell wasn’t saying anything that hadn’t already been said last week and the market’s understanding of the Fed’s reaction function remains entirely appropriate. Yields stabilized and inched lower as a result. Better gains followed the strong 20yr bond auction at 1pm ET with longer-term Treasuries and MBS getting back to ‘unchanged’ by the 3pm CME close.
MBS ended the day up 6 bps. Stocks lost 23.02 points total
91.8% of U.S. homeowners with a mortgage have an interest rate below 6%. That’s down from a record high of 92.9% in 22Q2. The tiny decline over the course of a year shows how “rate lock” has frozen existing homeowners in their tracks, and why existing inventory is so limited. In fact, 82.4% of mortgagees have a sub-5% rate, 62% have a sub-4% rate and 23.5% have a sub 3%-rate.