Good Morning!
Hope you all had a wonderful weekend! Our oldest, Noah, had a day off Friday so we took him to Meow Wolf. He really loved it, especially The Perplexiplex room. If you haven’t gone, it’s quite incredible. The rest of the weekend was pretty low-key wafter our youngest, Helen, woke up sick. We pretty much just stayed home and watched movies and football all weekend. She is back to full-strength today, thankfull!
It was another brutal week for the bond/interest rate market. We ended the week prior at 5.15%, but after receiving both a favorable PCE Inflation report and weak jobs report, rates still keep going up. As of this morning, the 10 YR is at 5.33%. You have to go back to June 2007 when the 10 YR yield was this high, and before then, try April 2002. At this point, it feels like nothing stops this train until something breaks or this Iran War is officially over. Hang in there!
If you are a buyer, represent a buyer, or know someone looking to buy, remind them that the higher-rate environment may give buyers something they haven’t had in a while: more negotiating power and less competition. Not to mention, the payment they WANT!
Right now, we are seeing opportunities for buyers to negotiate seller concessions, which can potentially be used toward closing costs or a seller-paid rate buydown to help lower the buyer’s monthly payment. We can structure the financing to take advantage of the opportunities available today and explore a seller-paid buydown to help make the payment work.
As we have seen over the past 6+ years, as rates come down, many of the buyers currently waiting on the sidelines are likely to re-enter the market. That can mean more competition, multiple offers, and higher home prices.
Just my two cents on this current market and rate environment.
What We’re Watching This Week
The September FOMC minutes, released Wednesday, will be the main event this week, as markets look for clues about what could come next for interest rates.
While the September rate hike was unanimous, that vote masked meaningful disagreement within the Fed. Some officials favored acting aggressively to contain inflation, while others preferred a more patient approach. The minutes should give us a better sense of where the divisions lie, and what it might take for the Fed to hike again.
Services & Inflation
It’s a relatively light week for U.S. economic data, beginning with Monday’s September ISM Services Index. After a solid 55.4 reading in August, the index is expected to ease slightly to 55.0.
The headline matters, but the prices component may be even more important for rates. It surged to 72.6 in August, its highest level in four years. Another elevated reading would add to concerns that inflationary pressures remain stubborn, particularly in the service sector.
Trade & Economic Growth
Tuesday brings the August international trade report following a surprisingly weak advance goods report. The trade deficit is expected to widen to $101.9 billion from $88.6 billion in July. Current estimates suggest net exports could subtract roughly 3.5 percentage points from Q3 GDP growth, making trade a potentially significant drag on the economy. That could become increasingly important if markets begin shifting their attention away from inflation and toward the risk of slower economic growth.
Consumer Inflation Expectations
Wednesday also brings the New York Fed’s September Survey of Consumer Expectations.
In August, three-year inflation expectations actually declined to 3.2% from 3.3%, despite rising expectations for gasoline prices. With fuel prices climbing further since then, one-year inflation expectations could move higher. The bigger question is whether longer-term expectations remain anchored. A jump in longer-term inflation expectations would likely be more concerning to the Fed, and potentially more negative for bonds.
Consumer Sentiment
Friday brings the preliminary October University of Michigan Consumer Sentiment survey.
Sentiment fell to a four-month low of 48.1 in September and is expected to decline further to 47.8 as consumers continue to feel the effects of tighter financial conditions and higher fuel prices. Weak sentiment alone may not be enough to change the Fed’s thinking, but continued deterioration could add to evidence that higher rates are beginning to weigh more heavily on consumers and the broader economy.
Treasury Auctions & Fed Speakers
Given the recent volatility in bonds, Wednesday’s 10-year Treasury auction and Thursday’s 30-year auction could be important events for mortgage rates. Several recent auctions have seen relatively soft demand, so another weak showing could put additional upward pressure on longer-term Treasury yields.
We’ll also hear from several Fed officials, including John Williams, Lorie Logan, Michelle Bowman and Alberto Musalem. Williams, Bowman and Logan are voting members of the FOMC this year, making their comments particularly worth watching.
All in all, this week is less about the quantity of economic data and more about what we learn regarding the Fed’s next move. Wednesday’s FOMC minutes will be the centerpiece, particularly after the divisions hidden beneath September’s unanimous rate hike. Meanwhile, the ISM prices data, consumer inflation expectations and Treasury auctions could all influence an already volatile bond market.
For mortgage rates, the best-case scenario would be evidence of cooling inflation, weakening growth and strong demand at the Treasury auctions. Sticky inflation, hawkish Fed commentary or another round of weak Treasury demand could keep upward pressure on rates.
1 Year Look at the 10 YR Yield (1 Month Chart)
10 Takeaways Friday’s Payroll Report – With Help From David Rosenberg
- Payrolls badly missed expectations: September added just 29,000 jobs vs. 90,000 expected, while the prior two months were revised down by another 60,000 jobs.
- August was revised lower: August payroll growth was cut from +162,000 to +133,000, adding to evidence that hiring momentum is fading.
- Unemployment ticked higher: The unemployment rate rose to 4.2% from 4.1%, although labor-force participation improved to 61.8% from 61.6%.
- Wage growth was surprisingly weak: Average hourly earnings rose just 0.1% MoM vs. 0.3% expected, bringing annual wage growth down to 3.0% — the slowest pace since May 2021 and well below the 3.9% pace a year ago.
- That wage number is potentially great news for inflation: Slowing wage growth suggests the labor market is not generating significant new inflationary pressure, which could reduce the need for additional Fed tightening.
- A key leading indicator is flashing caution: Temporary-help employment fell 11,000 in September and 21,000 over the past three months. Temp hiring often weakens before the broader labor market does.
- Workers are becoming less confident: The voluntary quits rate dropped to 10.5% from 13.1%, its lowest level since May 2025. Fewer workers voluntarily leaving jobs can also foreshadow slower wage growth.
- The quality of job growth was weak: More than half of September’s employment gains came from part-time jobs, while the number working part-time for economic reasons increased by 111,000.
- More Americans are working multiple jobs: Multiple-job holders jumped by 181,000 and have increased for four consecutive months. They now represent 5.5% of the workforce, near the upper end of the past 25 years.
- October & December Fed Decisions: This was a bond-friendly jobs report. October Fed rate decision went from a 70% chance of a hike to a 23% chance. Weak hiring, downward revisions and especially softer wage growth should reduce some of the pressure for additional Fed hikes. If October delivers another report like this, the case for a December hike becomes significantly harder to make.
This Week’s Important Data Releases:
- MON – All Car Sales, All Truck Sales, ISM Services Index,
- TUES – ADP Weekly Employment Change, Exports & Imports, Fed Member Speeches,
- WED – MBA Mortgage Applications, 10-YR Note Auction, FOMC Minutes, Consumer Credit (August)
- THURS – Jobless Claims, Fed Member Speeches, 30-YR Bond Auction,
- FRI – Michigan Consumer Sentiment (Preliminary October report)
Thanks for reading and have a great day!
