BIG TWO WEEKS AHEAD: Key Insights
As the market anticipates turbulence, recent bond activity shows a puzzling gap between mortgage rates and government securities. Despite a decline in the 10-year Treasury note, mortgage rates remain unaffected, raising questions among analysts and homeowners. With key economic indicators upcoming and an uncertain political landscape, the next weeks are crucial for real estate financing.
BIG TWO WEEKS COMING: Market Volatility Ahead
Earlier this week we had an unusual day in the bond market. We saw conventional mortgage rates take a noticeable hit, while government rates showed slight improvement. Adding to the complexity, the 10-year Treasury note dropped by 6 basis points (BPS)—typically a positive sign for mortgage rates. But sometimes, the markets don’t move in sync, and this was one of those days where things didn’t quite align as expected.
A Glimpse at Today's Markets
Fast forward to today, and we’re holding steady compared to where we left off yesterday. Morning rate sheets haven’t continued their downward trend, which is a relief. Earlier, we saw a brief uptick before initial jobless claims were released, and the numbers came in lower than expected. While that’s good news for the economy overall, it’s not great for mortgage bonds. Lower initial jobless claims signal economic strength, which often pushes mortgage rates higher. However, continuing jobless claims were higher than expected, indicating that more people are staying unemployed, adding a counterbalance to the day's market movement.
Understanding the PMI Index
This morning also saw the release of the S&P Global Composite PMI Index, which sounds complicated but is actually straightforward. It gives us insight into the global economy by measuring the health of the manufacturing and services industries. In the U.S., the numbers show expansion in manufacturing—new orders, employment, inventory, and the like are all up. But the services sector, which includes transportation, finance, insurance, and real estate (but not retail), is contracting. This mix of expansion and compression adds another layer of complexity to the bond market and mortgage rates.
What to Expect Next
Looking ahead, there’s been a lot of selling pressure on mortgage bonds recently, which isn’t good for rates. Much of this is driven by anticipation of next week’s key reports: ADP employment, Job Openings and Layoffs, and the Personal Consumption Expenditures (PCE) inflation report. These are all critical data points that could swing the market one way or the other.
For now, we just need to ride this wave through the election and the next Fed meeting to see where the market takes us. It’s a critical time for anyone watching mortgage rates closely—stay tuned for what could be a wild ride over the next two weeks.