Mortgage bonds sold off Monday without a clear trigger. UMBS 6.0 settled at 97.78, down 28 cents, the 10-year Treasury rose to 5.310%, and the average 30-year fixed moved up to 7.61% from 7.57%.

Our morning update called the open a recovery. That was wrong. The 10-year was a touch better before 8 AM ET, and mortgage bonds were already slipping by 10 AM. The low came just before 1 PM, when UMBS 6.0 was down about 31 cents and the 10-year was near 5.33%. Bonds recovered a few cents into the close, and several lenders repriced worse along the way. The only data was September ISM Services at 54.9, slightly under the 55.0 forecast. The prices-paid index inside the report rose to 74.0 from 72.6, though, and the market ignored the headline miss. The selling was at the long end. The 2-year yield fell almost 2 basis points while the 30-year Treasury rose 5. Mortgage rates follow the long end, so the short-end rally did borrowers no good.

For borrowers, Monday picked up where Friday left off. The average 30-year is 7.61%, up for a second straight session and above last Wednesday's 7.60%. The Fed debate is still hold versus hike, and last week's weak jobs report only lowered the odds of an October hike. A heavy week of Treasury supply leaves bonds without much support. Weekly jobless claims come Thursday, October 8. The bigger test is September CPI on Wednesday, October 14, not this week as our earlier updates said.

— David Burson, NetRate Mortgage