MBS Weekly Market Commentary Week Ending 8/5/22

The primary driver of movement in the bond market this week was always going to be the July employment situation report, which came out this morning and showed that the U.S. economy added 528,000 jobs over the past month. Expectations were for the economy to have added 230,000 jobs after adding 372,000 in June. This is the highest monthly jobs gained in five months and the unemployment rate ticked down to 3.5%. The report has large implications for the near-term path of Fed rate hikes and MBS pricing. The recent rally in the bond market was due to investor hope that the Fed would be less aggressive going forward. That will not be the case.

The labor market is still strengthening, not weakening, which is consistent with an economy in expansion during an inflationary boom. Talk of a recession is premature. The report, which is the latest chance to gauge the strength of the U.S. economy, makes the Fed’s job harder, as a booming labor market will likely force the Fed to raise rates by 75 BPS for the third consecutive time at its next meeting in September. Wage growth, which climbed 0.5% for the month (picking up from 0.3% in June) and 5.2% over the last year feeds into the narrative that we are yet to reach peak inflation.

The strong payrolls report validates the Fed’s view of a resilient economy that can withstand additional rate hikes. Bond yields had been falling on the hope that the Fed will pivot to a more normal policy as the economy weakens, but the report endorses much of this week’s Fedspeak that sought to jawbone rate expectations. A handful of Fed officials this week reiterated the central bank’s resolve to bring down high prices; St. Louis Fed President Bullard said that the central bank will continue raising rates until it sees compelling evidence that inflation is falling. He added that he expects roughly another 1.5 percentage points of interest rate increases this year. Minneapolis Fed President Kashkari said that the central bank is committed to doing what is necessary to bring down demand to reach policymakers’ 2% long-term inflation goal, which remains far off.

This payroll report shows that Fed has a lot more work to do in getting aggressive and pushing up rates, which makes the “soft landing” scenario seem less likely. Expectations for Fed policy have already been recalibrated, with a hike of 0.75%  the most likely scenario at the September meeting as the central bank fights inflation. Treasury prices sank in the wake of the report. There will be one more jobs report released before the September FOMC meeting, but this report confirms the need for the Fed to continue tightening, and Fed officials have come out in favor of front-loading rate hikes during this tightening cycle.

While the possibility of a dovish pivot that Fed Chair Jerome Powell hinted at last week has diminished, volatility persists in the bond market. Looking for more tips on how to navigate this period of increased volatility? Hopefully, you attended our webinar on Improving Profitability to Counter Market Headwinds. We have also published several blogs over the last few weeks, including Strategies for Mitigating Risk in a Volatile Market, which provide more subject matter on the current market. As always, contact us if you are looking for a better suite of secondary marketing products or more guidance on how to manage market volatility.

10-Year Treasury Yield Curve

Compare this chart with the mortgage rates chart to see how the 10-year treasury and mortgage rates are correlated. Read more below to learn how mortgage rates are tied to the 10 year treasury yield. View raw data on U.S. Department of the Treasury website.


Mortgage Rates Today

The current MBS daily rates are shown below in this chart for 5/1 Yr ARM, Jumbo 30 Yr, FHA 30 Yr, 15 Yr Fixed, 30 Yr Fixed. Sign up for our MBS Market Commentary to receive daily mortgage news in your inbox.

About the Author

Robbie Chrisman, Head of Content, MCT

Robbie started his mortgage industry career with internships during high school and college at Peoples National Bank in Colorado, and RPM & Bay Equity in the San Francisco Bay Area. After graduating from The University of Texas at Austin with a degree in Finance in 2014, he went to work at SoFi, where he rose to Director, Capital Markets assisting in the creation of SoFi’s residential mortgage division before leaving to work for TMS in Austin, Texas. From there, he went to work for FinTech startup Riivos in San Francisco and now is the Head of Content at Mortgage Capital Trading (MCT) in San Diego.

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Previous Weekly Market Reviews by Mortgage Capital Trading (MCT)

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MBS Weekly Market Commentary Week Ending 3/31/23

The market reaction went a little “too far, too fast” in regard to the Fed policy pivot. We witnessed the coupon stack (i.e., the price spread between TBA coupons) decompress in more than a trivial manner in a short period. However, the primary mortgage market has been largely reluctant to follow the Treasury rally, and mortgage rates have ultimately not dropped by the same amount as Treasury yields.

MBS Weekly Market Commentary Week Ending 3/24/23

The FOMC raised its benchmark rate by 25 basis points to a new range of 4.75%-5.00% on Wednesday, a middle ground policy move made in the hope of tampering inflation without further harming the banking system. The raise marks the 9th consecutive rate hike since the Fed began hiking in May of last year and brings the target fed funds rate range to the highest level since September 2007. While the central bank’s monetary policy has been aimed at correcting inflation, it has also revealed hidden weaknesses (e.g., entities whose balance sheets relied on low interest rates).

MBS Weekly Market Commentary Week Ending 3/17/23

Next week will reveal the Fed’s resolve on continuing to beat the drum on their aggressive inflation fight. The word until now has been that the central bank will keep hiking interest rates until inflation is under control.

MBS Weekly Market Commentary Week Ending 3/10/23

Events this week likely will lead to a higher peak interest rate than investors had been expecting just weeks ago. Central bankers appear worried about a cycle in which workers seek higher pay to offset inflation’s bite, and in turn trigger more price increases. In fact, inflation remains high because people have jobs and earn enough income to cover stubbornly expensive housing costs. Robust hiring is good for the economy and workers, but elevated pay growth puts added pressure on the Fed to bring down earnings. 

MBS Weekly Market Commentary Week Ending 2/10/23

The week after the jobs report is generally pretty data-light, and this week was no exception. With a dearth of data, market movement hinged on “Fed speak” and consumer sentiment. We saw some volatility return to bond markets as investors built in expectations for a more hawkish Fed. As a reminder, the Fed raised its benchmark rate last week to a range of 4.5% to 4.75%. Let’s run through what we’ve learned in the wake of that decision and a robust U.S. payrolls report that took some wind out of investors’ sails that had hopes for rate cuts by summer.

MBS Weekly Market Commentary Week Ending 2/3/23

As strong as economists may have thought the job market was, it’s even stronger. In addition to headline non-farm payrolls in January (517,000) beating estimates by around 300,000, employment numbers were revised higher for the past two months. Yes, a tight labor market is anathema to any sort of quick stop to the Federal Reserve’s rate hiking cycle, but the growth rate in average hourly earnings is declining, which will be welcome news to Fed Chair Powell and his colleagues. There exists a raging debate among economists over whether we’ll need a sharp rise in unemployment to keep inflation low.