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Rates End Near Last Week’s Highs After Data Swings For Fences

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The large monthly employment report from the Department of Labor (formally known as the “Employment Situation”) is one of the most reliable sources of volatility. degree of interestWhile this was much easier to observe pre-pandemic, major economic reports are taking more and more attention as markets look for evidence that inflation and the Fed’s tightening policy are hurting the economy. I am collecting

When the economy weakens, demand for goods and services decreases. In this he has two purposes: degree of interest.

  1. Slower economic growth makes safer investments such as bonds more attractive. Excessive demand for bond purchases pushes interest rates down.
  2. Declining demand drives prices down, helping to keep inflation under control. Inflation is the enemy of low interest rates, and the Fed’s tightening policy is the main reason for maintaining upward pressure on rates. Therefore, once inflation subsides, all other things being equal, interest rates will fall.

That is, what is bad for the economy is usually good for interest rates.

Some recent reports certainly show clear signs of a recession. This is the main reason interest rates hit new secular lows last week. But this is a new week and the two biggest economic reports have never been weaker.

fence swing.

In a week when many sports fans missed the late Vin Scully’s famous ‘high fly ball in right field’ call during the 1988 World Series, two of the most shocking economic reports were shaking the fence .

First up was the highest rated index in the services sector (ISM’s non-manufacturing PMI). That shows the economy isn’t shrinking in July. Of particular note is the “business activity” component of data, which reached its highest level in 2022. More importantly, it was in stark contrast to his last two readings, which were the worst in over a decade (despite the lockdown months).

And what about that big job report? Last month’s report showed that 372,000 jobs had been created, but the median forecast for July figures (released this week) was just 250,000. Employment figures, however, rallied sharply to 528 after an upward revision to 398,000 in June. Wages growth was also better than expected at 0.3%, at 0.5%, and the June figure was also revised upwards.

Again, strong economic data has a negative impact on interest rates. These two reports were very strong. Together they act as a one-two punch that yields a 10-year yield, mortgage interest rate Back to last week’s highs.

20220805 nl2.png

taller than mortgage interest rateWhat a 4.99%!?

News stories have run amok with headlines declaring a sudden return of interest rates below 5% on Thursday. Regular readers know it’s old news given last week’s discussion of the availability of even lower rates.

As with so many examples of frustrating discrepancies between average news headlines and the availability of actual mortgage rates, this too was due to over-reliance on Freddie Mac’s weekly mortgage rate survey. has occurred.

Freddy’s Investigation is the longest running and most deeply rooted catalog of history. mortgage interest rate in the industry. There’s a reason it’s stuck, and it does an excellent job of tracking wide-ranging changes over time. But for the purpose of understanding where interest rates are on any particular Thursday, Freddy’s survey is unacceptably dated, especially during periods of heightened volatility.

why so old?

The official response window for the survey runs Monday through Wednesday, but the majority of responses are due Monday. Freddie officially states that most responses come in on Tuesdays, which is either incorrect, or responses come in early Tuesday morning before lenders update their rates for the day. If there was ever a report confirming that, it’s from this week! Here’s why:


The chart above shows the minute-by-minute movement of mortgage-backed securities. MBS Feethe line above is inverted, so the higher the rate, the higher and vice versa).

In short, this week’s research window has dropped to the absolute bottom of this week’s interest rate range (the bottom lasted only a few hours). Additionally, it was measured against the absolute high of last week’s range, thus allowing for the largest weekly drop that could have been caught.

None of the above is bad per se. If interest rates hadn’t moved much since Tuesday morning, 4.99% would be close enough to reality, especially after accounting for the additional upfront costs (or ‘points’) included in the study. But as we know, both the chart above and the initial reaction of the economic data caused interest rates to rise significantly by Friday.

Price conclusion: Interest rates dropped significantly earlier this week, but quickly returned to levels in line with last week’s highs. By the way, while Freddie intended to take a break due to the solid performance of the bond market on Thursday, Friday’s employment report wiped out that improvement entirely (hence the ‘W’ pattern in the daily interest rates below). )


Forever Disclaimer Regarding Rate Index: There are always multiple factors that influence individual pricing estimates. Widespread metrics, such as Freddy’s weekly mortgage rate survey and the “actual daily average” above, are drawn from best-case scenarios and, in some cases, have a fixed initial cost (“points”). It is implied.

ADDITIONAL DISCLAIMER FOR POINTS: “Point” is a term that represents one percentage point of the loan balance that is prepaid to obtain a lower interest rate. This additional cost is not always exactly 1 point. It can be more or less. But the point about these points at this point in the history of mortgage rates is that they pack a much bigger punch than they normally would.

mortgage interest rate It’s declining at a record pace” data-contentid=”62e4416fe3232a3b3c136454″ data-linktype=”newsletter” rel=”noopener”>We talked about why last week, and the bottom line is that mortgages and mortgages It is that there is not much difference between the 4.99% and 5.5%+ rates as history suggests. In the past these two rates were usually at least two points apart. Now most of the time , which is less than 1. This not only increases daily volatility – it requires daily rate tracking, but this is because some lenders advertise in points and others do not. It also means that the estimates of are more diverse.

Coming next week: If the strong jobs numbers make headlines this week, understand that employment data is not as relevant as the Consumer Price Index (CPI) as far as bond and interest rate expectations over the past two months are concerned. Need proof?

20220805 nl5.png

The chart above is a little more complicated, but the goal is to show the power of the CPI to move both short- and long-term interest rate expectations more readily than employment data. Do you want evidence that interest rates, such as the 10-year Treasury yield, are moving in line with the Fed’s long-term rate hike expectations? showing peaks and valleys):

20220805 nl3.png

Just say “CPI matters”. Next Wednesday (August 10) will bring him one of two instances of his CPI data that the Fed will consider before deciding on a rate hike path at its September meeting. Other economic indicators will come out, but none with controversial potential, for better or worse.

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