Weekly Mortgage & Market Update
Mortgage Bonds & Rates
Mortgage Bonds and rates have been holding up relatively well compared to the 10-year Treasury, helping the mortgage spread—the difference between the 10-year yield and 30-year fixed-rate mortgages—narrow. After starting the year at 2.70%, the spread has now reached 2.25%, hitting our target for the year. This is a healthy sign for the market.
Market Spotlight: NVIDIA Earnings
All eyes are on NVIDIA, which reports earnings after the bell today. With the company making up 7.68% of the S&P 500—the highest share by any single company in history—its results carry significant weight. Strong earnings could fuel further stock market gains, but if results disappoint or forward guidance softens, we could see stocks pull back. In that case, money may rotate into the Bond market, potentially benefiting rates.
Fed Commentary: John Williams
NY Fed President John Williams, a permanent voting member, gave a wide-ranging interview this morning. While he avoided discussing the recent controversy around Fed Governor Lisa Cook, he did share his economic outlook:
- Interest Rates: Williams noted that the Fed remains restrictive. He estimates the neutral rate (r*) at 0.7%, which means the Fed is currently restrictive by 0.875%. That implies the Fed could cut rates up to three times and still be restrictive.
- Inflation: He believes inflation has been gradually cooling outside of tariff impacts and highlighted slowing housing inflation. However, he did not acknowledge the lagged effect of shelter data, which continues to overstate inflation.
- Labor Market: Williams called the labor market “solid,” focusing on the unemployment rate of 4.2%. Yet this overlooks concerning trends: household surveys show 863,000 job losses over the last three months, and revisions are expected September 5. Continuing Claims also remain at their highest since November 2021.
- Consumer Confidence: Williams referenced Conference Board data on labor, but the survey actually paints a weaker picture.
Consumer Confidence Weakening
The Conference Board’s Consumer Confidence Index slipped from 98.7 to 97.4, with labor-related measures showing the most weakness:
- Those saying jobs are “plentiful” fell to the lowest since March 2021.
- Those saying jobs are “hard to get” rose to the highest since February 2021.
- Expectations for future jobs and income also declined.
This data suggests the labor market is showing cracks, contrary to the Fed’s optimistic narrative.
Mortgage Applications
The MBA reported that rates last week held steady around 6.625%, about 0.25% higher than this time last year. While rates were stable last week, they’ve since moved lower toward 6.5%, which could drive more applications in next week’s report.
- Purchase volume rose 2% last week and is up 25% year over year.
- Refinances fell 4% but remain 19% higher than a year ago.
Technical Analysis
Mortgage Bonds broke through resistance at 102.09 yesterday—a level that’s been tough to clear in recent weeks. This morning, they opened above it, tested it, and are holding firm. If Bonds can maintain this move, there’s about 40bp of room to the upside before hitting the next ceiling.
Takeaway
The mortgage market is showing strength with spreads tightening and purchase demand climbing. While stocks are heavily focused on NVIDIA’s earnings, any weakness could shift money toward Bonds and keep mortgage rates supported. Meanwhile, Fed officials remain cautious, but the underlying labor and confidence data suggest cracks are forming in the economy. All eyes now turn to the upcoming jobs data and the Fed’s September 17 meeting for the next big market mover.
