Bonds sold off through the early afternoon on higher oil prices, then took about a third of it back before the close. The 10-year settled at 4.674%, up 2.5 basis points, and the 30-year mortgage rate held at 6.75%.
The day ran in three legs. Jobless claims at 8:30 AM Eastern printed 203,000 against a 208,000 consensus — a tighter labor market than expected, which bonds do not like — and by mid-morning the 10-year was at 4.661%, up a little over a basis point. Selling built through midday and yields hit their worst level of the session just after 2:00 PM Eastern at 4.679%, three basis points higher on the day. From there the tape steadied: 4.67% by early evening, settling at 4.674%. UMBS 5.5 closed at 99.45, down about nine cents; the 6.0 coupon closed at 101.46, off four.
The part worth understanding is that the afternoon leg had nothing to do with data. There was no economic release after 8:30 and the calendar was empty for the rest of the session. What moved yields was oil — fuel costs feed straight into inflation expectations, and inflation expectations set the floor under long-term yields. That is the same mechanism that hit bonds on Wednesday. Two sessions running, the pressure on rates has come from energy rather than from the Fed or the labor market. The technical detail carrying into tomorrow: 4.67% capped the 10-year on each of the prior two sessions, and today yields traded through it and closed above it. That ceiling is now a level the market has to prove it can get back under.
For you as a borrower, today produced almost nothing. The 30-year is unchanged at 6.75%, and no lender repriced — the weakness arrived late in the afternoon and was too small to act on. Lenders change rates once or twice a day, and a two-to-three basis point drift after noon does not clear that bar. So the bond market had a genuinely weak afternoon while the rate you would be quoted sat still. What comes next is thin on the calendar and heavy on one event: Kevin Warsh speaks at Jackson Hole Friday morning, Monday is the last business day of August, and there is no economic data of consequence until jobless claims on September 3 and the jobs report on September 4. The Fed meets September 16.
— David Burson, NetRate Mortgage