Bond pricing is improved in early trading as Treasury yields jump lower. The 10-year Treasury yield is currently 4.647%, below this morning's open near 4.692%, after the Treasury announced an upscaled buyback operation for longer-term debt — almost doubling the size of its liquidity-support purchases.
01Treasury surprises markets with a bigger buyback
The buyback is aimed at 10-through-30-year Treasuries and is set to begin September 9. It's a move to shore up liquidity in longer-dated debt after weeks of pressure pushed yields to multi-year highs. The situation in Iran remains tense, with no resolution in sight and negotiations stalling — and investors remain concerned that inflation could run hotter and last longer than originally anticipated, with global oil flows still restrained in the region.
The Fed's latest meeting minutes are due out today at 2 p.m. ET and could offer more detail on the dissent from July's meeting, when three Fed officials voted to hike rates. Initial jobless claims and the Manufacturing and Services PMIs are due out tomorrow and Friday, respectively. Last month's PMI data showed continued expansion, suggesting demand remains strong across those industries.
02Pending home sales
The NAR released its Pending Home Sales report for July, which measures signed contracts on existing homes. Sales fell 2.3% last month, weaker than the slight gain that had been expected. June's figure was also revised 0.6% higher, which makes today's miss look larger by comparison, but the underlying trend was still soft. Pending home sales are now down 2.2% year-over-year.
NAR pointed to the highest mortgage rates of the year as the driver behind the pullback in contract signings, which tracks with what the rate environment has looked like this summer.
03Mortgage applications
The MBA released its mortgage application data for last week, showing rates held just above 6.75% — about an eighth of a point higher than this time last year. Application volume was largely flat week-over-week, though still at subdued levels, and lower on a year-over-year basis with rates running higher. Purchases are now down 3% year-over-year, while refinances are down 18%. With so few rate-and-term refinances available right now, opportunities like debt-consolidation cash-out refis are becoming a bigger piece of how top producers are finding extra deals each month.
04Technical analysis: bonds break back above the 25-day
After the Treasury's announcement, mortgage bonds moved higher, breaking back above the 25-day moving average. That's a positive sign, but bonds have been unable to hold gains like this over the past month, so confirmation matters more than the initial move. If bonds can stay above this level of resistance, the next stop is the 50-day moving average, roughly 20 basis points above current levels.
Dashed line marks the 25-day moving average mortgage bonds just broke back above — a level bonds have failed to hold above for the past month.
On the Treasury side, the 10-year once again held at 4.71%, which has been a key ceiling on yields. Yields have now moved down to the 25-day moving average, a level that's been difficult to break beneath — yields haven't traded under it since late June. If yields can break below the 25-day, the next stop is 4.588%, though a bounce higher off this floor remains a real possibility.
Today's move higher in bonds came from a policy intervention, not a shift in the underlying data — which is exactly why holding these gains matters more than making them in the first place.
Today's improvement in pricing is a real positive, but it's coming from a Treasury market intervention rather than a change in the inflation or growth picture — both of which remain sources of upward pressure on rates. Watch whether mortgage bonds can hold above the 25-day moving average, and keep an eye on this afternoon's Fed minutes for more on how close the committee actually was to a hike in July. With rate-and-term refinance opportunities thin right now, cash-out and debt-consolidation refis are worth a look for clients who could benefit — reach out to your loan officer to talk through the options.