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In the wake of bank failures earlier in the month, stock prices and bond yields had been highly correlated.  This is a more normal trading pattern for times when the market is trading "risk" as opposed to "Fed accommodation."  This week has marked the biggest departure from that risk-on/off pattern--especially over the past two trading sessions.  This suggests markets are increasingly getting over bank contagion fears, but without rushing out of the bond market. What do we make of this?  Not too much, necessarily.  Once could argue, the risk-on/off pattern is still more intact than not by pointing out that stocks moved up late last week and bonds finally got caught up this week.  After all, both are right in line with the same levels from Wednesday morning. But it's also clearly not as intact as it had been last week.  This could be viewed as a transitional phase with the market gradually getting back to trading Fed accommodation (i.e. lower inflation = good for both stocks and bonds because it implies a friendlier Fed, or higher inflation doing the opposite).  Either way, it's encouraging to see bonds holding ground without rushing back up to the levels seen before the SVB failure.  This strongly suggests the market is assuming some economic fallout from the banking drama.   In other words, the conditions that justified 4% 10yr yields have changed, probably.  And that belief would only be eroded by a series of compellingly strong economic reports.

Two hydrogen atoms meet. One says, “I've lost my electron.” The other asks, “Are you sure?” The first replies, “Yes, I'm positive.” (Yes, its cutting-edge humor like this that keeps you coming back.) Do positive thoughts matter? Houston’s Norina and Ramon Navarro think so. Thinking positive thoughts about the housing inventory in the United States probably won’t help, and I am hearing renewed stories about a lack of inventory and multiple offers at certain price points around the nation. There are only 578,000 active listings nationwide. (This is out of 142 million housing units.) Where’s the supply? Well, what do American Homes 4 Rent, Home Partners of America/Blackstone, Tricon Residential, Main Street Renewal, Progress Residential, Invitation Homes, and a smattering of others have in common? They have accumulated more than 65,000 homes in the Atlanta area alone. Thank you to DepthPR’s Kerri M. for sending along this article spelling things out titled, “The American Dream for Rent.” Given that so much of our lives are dictated by supply and demand, well, you get the picture, and many think it isn’t pretty. (Today’s podcast can be found here and this week it’s sponsored by MGIC. Since 1957, MGIC has insured more than 13.5 million mortgage loans with innovative products, tools and strategies that help customers solve problems and fuel growth. Explore tools and solutions to boost your business here. Interview with SPMB’s Ross McLaughlin on executive search firms and finding the best candidates for open positions.)

Applications for both home purchases and refinancing rose for the fourth time during the week ended March 24. The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of application volume, increased 2.9 percent on a seasonally adjusted basis and 3.0 percent unadjusted compared to the week ended March 17.   The Refinance Index was 5 percent higher than the previous week and the refinance share of activity increased to 29.1 percent of total applications from 28.6 percent. The Index was 61 percent lower than the same week in 2022. [refiappschart] Purchase applications were 2.0 percent higher than the prior week on both an adjusted and an unadjusted basis  but the unadjusted Purchase Index was 35 percent lower than the same week a year earlier.   [purchaseappschart] “Application activity increased as mortgage rates declined for the third straight week. The 30-year fixed rate declined to 6.45 percent, the lowest level in over a month,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “While the 30-year fixed rate remained 1.65 percentage points higher than a year ago, homebuyers responded, leading to a fourth straight increase in purchase applications. Home price growth has slowed markedly in many parts of the country, which has helped to improve buyers’ purchasing power. Purchase applications remain over 30 percent behind last year’s pace , but recent increases, along with data from other sources showing an uptick in home sales, is a welcome development.”  

The week began with a noticeable uptick in mortgage rates relative to last week's lows.  Today's momentum continued in the same direction, but with less urgency.  The average lender moved up by 0.06% for a flawless conforming 30yr fixed scenario. Mortgage rates are driven by the constantly-changing prices of mortgage-backed securities (MBS), which are essentially bonds that rely on mortgages as collateral.  The bond market had been doing very well in the midst of the recent banking panic as investors sought safe havens to park cash.  MBS and Treasuries both fit that bill. But as panic subsides, investors have moved cash out of the bond market.  This puts downward pressure on bond prices and upward pressure on yields/rates.  This continues to be the primary source of input for rates, and one that is beginning to settle down.  There is more room for rates to adjust higher if banking concerns continue to subside. 

The Most Boring Trading Day in Weeks Bond market volatility exploded on March 10th after the failure of Silicon Valley Bank.  There hasn't really been a day since then that would qualify as "boring," but if we had to pick one, today stood out.  It had the narrowest trading range of any day in weeks.  After losing a bit of ground early, momentum was decidedly 'sideways.'  There was no strong correlation with the stock market (a hallmark of recent trading patterns).  And there were no big ticket reports or events that did anything to change the narrative.  All in all, it was a placeholder in the quest for more relevant inputs. Econ Data / Events Case Shiller Home Prices y/y 2.5 vs 2.5 f'cast, 4.6 prev FHFA Home Prices y/y 5.3 vs 6.7 prev FHFA Home Prices m/m +0.2 vs -0.1 f'cast Consumer Confidence 104.2 vs 101.0 f'cast, 103.4 prev Market Movement Recap 09:06 AM Bonds rallied back to unchanged levels after weakness in Europe.  Slipping slightly now. 10yr up 1.3bps at 3.553.  MBS down 1 tick (.03). 10:23 AM Losing a bit of ground after a stronger Consumer Confidence report.  10yr up 3.3bpsa at 3.573.  MBS down just over an eighth of a point.  12:27 PM MBS drifting down to lowest levels of the morning.  See the alert for more. 01:09 PM Additional weakness heading into the auction, but recovering a bit afterward. MBS down only an eighth.  10yr up 1.7bps at 3.556, down from highs of 3.577. 04:25 PM Weakest levels in Treasuries with 10yr yields up 3.4bps at 3.573.  MBS down 6 ticks (.16)