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

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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 12/2/22

ederal Reserve Chair Powell tried to walk the tightrope between stressing that the central bank’s inflation fight is far from over and telegraphing that policymakers could downshift from their rapid pace of tightening as soon as the December 13-14 FOMC meeting. The Fed’s publicly preferred measure of inflation, the PCE Core Price Index, which excludes food and energy, was expected to increase 5% year-over-year, but increased 6% (not exactly a downward trend). And the economy added 263,000 jobs in November, which was better than 200,000 estimates as wage inflation continues to increase; average hourly earnings rose 0.6%, faster than in October. 

MBS Weekly Market Commentary Week Ending 11/18/22

As we enter the holiday season, everyone in the mortgage industry has the same problems: lower volume, lower pricing and gain on sale margins. With less emphasis on growing volume, due to a lack of borrower demand from currently high mortgage rates and a lack of seller demand from being locked into low mortgage rates, a much greater focus for companies in the mortgage industry has been on lowering costs and increasing profitability.

MBS Weekly Market Commentary Week Ending 11/4/22

We were reminded this week that the U.S. labor market is still on solid footing, aiding to speculation that the Federal Reserve will continue its aggressive rate hiking path beyond Wednesday’s 75 BPS rate increase. Today, we learned that October payrolls beat expectations (the headline figure came in at 261k, and there was a positive back month revision of 29k), which further complicates Fed’s job and lowers the odds of the mythical “soft landing.”

MBS Weekly Market Commentary Week Ending 10/28/22

We still seem to be a ways off from the point an actual FOMC voter says “let’s wait and see” when it comes to hiking rates. Until that occurs, bond prices continue to fall and the Fed (and others) will continue to incur paper losses on massive bond holdings accumulated during pandemic rescue efforts.

MBS Weekly Market Commentary Week Ending 10/21/22

We are beginning to see the Fed’s policy moves take hold, with slowing productivity growth, marginal gains in labor force participation, and home builder sentiment continuing to drop as higher interest rate costs price out a large number of prospective buyers.

MBS Weekly Market Commentary Week Ending 10/14/22

The pace of the Fed’s rate hikes and winding down of QE4 have introduced heightened volatility to the bond market. The Fed has raised its benchmark interest rates five times this year, including three consecutive 75 BPS rate hikes, increasing the cost of borrowing money in the hope that more expensive loans will result in less investment, less business expansion, fewer jobs, lower pay, and ultimately less inflation.