WTMS Blog Today = What’s up in Mortgage Today (AM) – 09/11/2024

Mortgage-backed securities are showing mixed signals today as markets digest the latest consumer price index (CPI) report that came in higher than expected. Despite the hotter inflation readings, mortgage rates have paradoxically moved lower, creating a counterintuitive market dynamic that has traders scratching their heads. The disconnect between inflation data and mortgage pricing reflects the complex interplay of Federal Reserve policy expectations and bond market technical factors. The 10-year Treasury yield is hovering around 4.05%, having slipped nearly 5 basis points in yesterday’s trading session as investors position for potential Fed action. Bond markets are climbing as traders continue to price in a September rate cut despite the stubborn inflation data. This unusual pattern suggests that employment concerns may be outweighing inflation fears in the Fed’s policy calculus.

UMBS (Uniform Mortgage-Backed Securities) pricing has shown resilience today, with green arrows indicating modest price improvements at mortgage news daily tracking sites. GNMA securities are following a similar trajectory, benefiting from the broader bond rally that appears to be driven more by employment data than inflation concerns. The mortgage market’s ability to rally despite higher inflation readings demonstrates the market’s focus on the Fed’s dual mandate of price stability and full employment. The MBS Highway National Housing Index posted its first monthly increase since April, rising 3 points to 27, signaling potential stabilization in housing market conditions.

This improvement comes as mortgage rates have dropped near their lowest levels in over a year following disappointing jobs data last week. The housing market appears to be responding positively to the prospect of lower borrowing costs, even as inflation remains elevated. Mortgage originators are cautiously optimistic about the recent rate improvements, though many remain concerned about the sustainability of current pricing given the mixed economic signals. The bond market’s ability to rally in the face of higher inflation suggests that Fed policy expectations are the primary driver of mortgage pricing in the current environment.

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