The Daily Tearsheet

Stocks are flattish this morning on no real news. Bonds and MBS are down.

The US Treasury auctioned off $39 billion in 10 year notes yesterday, with a bid/cover of 2.59 and a yield of 4.58%. Decent demand, but yields are going the wrong way as the Iranian ceasefire is over.

The FOMC minutes were released yesterday, and they shed light on the new thinking at the Fed. A majority of the participants supported the idea of saying less and becoming more opaque. Transparency at the Fed is really a recent phenomenon that came in the aftermath of the 2008 financial crisis when the Fed wanted to convince the world it was committed to escaping a deflationary spiral. Things like the post-meeting press conference, the dot plot, economic forecasts didn’t exist prior to that.

On the subject of monetary policy, the minutes gave little indication of where the participants thought policy was headed.

Most participants remarked on scenarios in which inflationary pressures would dissipate and inflation would soon begin to return to 2 percent. In such scenarios, almost all of these participants noted that it would likely be appropriate to maintain or eventually lower the target range for the federal funds rate. Most participants, however, also pointed to scenarios in which, in the context of stable labor market conditions, inflation would remain elevated due to strong AI-related demand, the conflict in the Middle East, or the effects of tariffs. In such scenarios, almost all of these participants indicated that some policy firming would likely be warranted to return inflation to 2 percent. Regarding participants’ individual assessments of appropriate monetary policy under what each participant judged to be the most likely scenario for the economy, many participants indicated that the appropriate level of the federal funds rate would be within or slightly below the current target range at the end of this year. Many other participants, however, assessed that the appropriate level of the federal funds rate would be above the current target range at the end of this year. Participants noted that their future policy actions would depend on incoming information.

To recap: Most participants said inflation could fall. Most participants said inflation could rise. Many participants thought rates could go down. Many other participants though rates could go up. Everyone agreed that incoming information is important.

“I like it. One dog goes one way, the other dog goes the other. And then this guy’s saying, ‘whaddya want from me?’ You want guidance? You get oogatz.

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Hedging tools for mortgage originators:

Non-QM mortgage origination continues to grow and mortgage bankers need a way to hedge their pipeline or book of closed loans awaiting sale. While TBAs are suitable for conforming mortgages, they are not the best fit for non-QM. Eris SOFR Swap futures and Eris Options offer a liquid and margin-friendly way to mitigate risk. Eris Options recently launched and are already seeing widespread appeal, following the largest roll volume in Eris SOFR Swap futures history, with 842,477 contracts trading the week prior.

Exploring Eris Options? click here

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First time homebuyers underestimate the cost of homeownership, according to a survey from Credible. A total of 73% of first time homebuyers underestimated the cost of homeownership by about $400 a month. They failed to take into account property taxes, homeowners insurance, maintenance and HOA fees. Many of these fees are rising faster than inflation, which is increasing the gap. A total of 35% of these buyers report not having emergency funds for unexpected repairs.

This speaks to the education responsibility that we have in the mortgage industry to make sure our borrowers (especially the young ones) aren’t blindsided when they make a purchase.

Stocks are lower this morning after the ceasefire with Iran breaks down. Bonds and MBS are down.

The FOMC minutes are due out at 2:00 pm today. It probably won’t be market-moving, but just be aware.

The ceasefire in Iran is over, according to President Trump as the two sides exchanged fire. North Sea Brent jumped 5% and the 10 year bond yield is pushing towards 4.6%. “The U.S. strikes are in response to Iranian attacks on three commercial vessels that were transiting the Strait of Hormuz. Iran’s demonstrated aggression was unwarranted, dangerous, and a clear violation of the ceasefire.”

New York Fed President John Williams said that monetary policy is in a “good place” and he supports new Fed Chairman Kevin Warsh’s view that forward guidance should be dialed back. “Given the uncertainties that we face in terms of inflation and the economic outlook, trying to give explicit forward guidance about where interest rates are going to be was no longer appropriate,” he said. “The uncertainties are too great.”

Mortgage applications fell 2.2% last week as purchases fell 1% and refis declined 4%. The week included an adjustment for the 4th of July holiday. “Mortgage application volume was little changed during the week of the nation’s 250th Independence Day celebration, as the 30-year fixed rate increased slightly to 6.58%,” said Mike Fratantoni, MBA’s SVP and Chief Economist. “After adjusting for the Independence Day holiday, government purchase volume increased modestly, led by a 5% gain in VA purchase applications, while conventional purchase activity declined. Refinance application volume was down 4%, as homeowners saw little enticement to act with rates still elevated.”

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Hedging tools for mortgage originators:

Non-QM mortgage origination continues to grow and mortgage bankers need a way to hedge their pipeline or book of closed loans awaiting sale. While TBAs are suitable for conforming mortgages, they are not the best fit for non-QM. Eris SOFR Swap futures and Eris Options offer a liquid and margin-friendly way to mitigate risk. Eris Options recently launched and are already seeing widespread appeal, following the largest roll volume in Eris SOFR Swap futures history, with 842,477 contracts trading the week prior.

Exploring Eris Options? click here

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The services economy reached a 4 month high according to the S&P PMI report. New orders drove the increase. That said, it wasn’t enough to increase employment.

“A key underlying factor behind the relatively subdued performance of the services economy was again elevated price pressures. Although easing slightly, aided largely by lower oil prices, costs continued to rise at a steep rate in June, driving up rates levied for services. Customer push-back against these high prices was again widely reported, most notably in consumer-facing businesses. Consumer-facing companies are nevertheless reporting that further price falls should help stimulate sales in the months ahead, providing a ray of hope for both the growth and inflation outlooks.”

Stocks are lower this morning on no real news. Bonds and MBS are down.

Iran fired missiles at two commercial ships, just as traffic is returning to normal in the Strait of Hormuz. So far markets are taking it in stride.

The services economy continued to expand in June according to the ISM Services Report. That said, expansion did decelerate a touch compared to May. New Orders and Activity decelerated, while employment moved from contraction to expansion. Notably, price inflation decelerated (meaning prices are still rising overall, just not as widespread or as rapidly).

“Respondents in June commented less frequently about pricing impacts on petroleum products, while tariff impacts continued to be a theme for increased pricing pressure. The Inventories Index dropped to its second-lowest level since October 2025, indicating that the buy-ahead phenomenon from earlier in the year may be over. The Imports Index dropped into contraction territory for the first time in five months, down from a spike to 55.2 percent in March, its highest level in over two years. The Backlog of Orders Index reached its second-highest level in almost four years. These readings, taken with respondent commentary, seem to indicate that supply chains are stabilizing amid sustained business activity, giving confidence to businesses that selective, yet modest, increased employment is warranted. World Cup-related hiring in the U.S. likely contributed to the increase to the Employment Index. Of the 18 services industries, nine of them — representing over 58 percent of U.S. gross domestic product (GDP) — reported higher employment levels in June. This represents widespread confidence that hiring is again warranted to support activity levels.”

With the energy shock largely over (at least with respect to oil prices) and tariffs beginning to roll off (the 4 month extension expires this month) we should see a marked improvement on pricing pressures, which will hopefully keep the Fed at bay.

The Atlanta Fed GDP Now index sees only 1.3% growth for Q2. Note that the big decline in late June is due to trade balance estimates. Consumption and investment are still at levels associated with 3% growth. In other words, GDP growth will be sluggish, but it won’t necessarily “feel” sluggish.

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Hedging tools for mortgage originators:

Non-QM mortgage origination continues to grow and mortgage bankers need a way to hedge their pipeline or book of closed loans awaiting sale. While TBAs are suitable for conforming mortgages, they are not the best fit for non-QM. Eris SOFR Swap futures and Eris Options offer a liquid and margin-friendly way to mitigate risk. Eris Options recently launched and are already seeing widespread appeal, following the largest roll volume in Eris SOFR Swap futures history, with 842,477 contracts trading the week prior.

Exploring Eris Options? click here

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Despite the narratives in the press Gen Z is buying houses and accounted for 1 in 5 purchase locks in the second quarter. Gen Z is still in their 20s, so this is good news. Gen Z accounts for a third of the first time homebuyer loans and 27% of FHA lending. These borrowers tend to have shorter credit histories, which generally means lower credit scores.

It looks like home price appreciation accelerated in June, according to ICE’s housing price index. It rose 0.29% MOM and 1.3% YOY. We are still below inflation, which means that real (inflation-adjusted) prices continue to fall and are now about 5% off of peak levels. As wages increase, affordability will return, especially if inflationary pressures decrease and allow the Fed to hold rates here.

Stocks are higher this morning on no real news. Bonds and MBS are down.

The upcoming week is relatively data-light as is typical for the week following the jobs report. The highlight will be the FOMC minutes where investors will look for clues about how serious the Fed is considering rate hikes. We will also get the ISM services report and existing home sales.

Non-QM loans are starting to show signs of credit stress, which is unsurprising given that many of the MSAs that rallied hard during COVID are now experiencing flat-to-negative price appreciation and flatlining rents. DV01 reports that 30 day DQs for non QM rose 30 basis points in May, and payment rates are at 4 year lows.

Full doc loans are performing best, while bank statement and self-employment income are struggling, particularly with borrowers with sub 700 FICOs. DSCR loans are performing better than bank statement, but are also showing signs of stress.

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Hedging tools for mortgage originators:

Non-QM mortgage origination continues to grow and mortgage bankers need a way to hedge their pipeline or book of closed loans awaiting sale. While TBAs are suitable for conforming mortgages, they are not the best fit for non-QM. Eris SOFR Swap futures and Eris Options offer a liquid and margin-friendly way to mitigate risk. Eris Options recently launched and are already seeing widespread appeal, following the largest roll volume in Eris SOFR Swap futures history, with 842,477 contracts trading the week prior.

Exploring Eris Options? click here

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Oil prices have fallen back to pre-war levels. North Sea Brent is trading at $72 a barrel, right where it was in late February when the initial strikes began. The markets obviously think that the fighting is over and the Strait will remain open. But it also reflects a natural rule in commodity markets: the cure for high prices is high prices. As oil prices rose, well that had lied dormant were re-opened and brought additional supply to the market. In fact, we have somewhat of a glut at the moment, however many governments including the US and China will want to replenish strategic oil reserves.

So why are gasoline prices still high? Gasoline prices are a refined product and no crude oil. The price of refined goods is tracked via crack spreads, and crack spreads are sitting at highs.

So why are crack spreads not moving down with oil prices? Refining capacity hasn’t kept up with demand, and many West Coast refineries are shutting down because it is too expensive to operate there. Note Exxon Mobil just changed its domicile from New Jersey to Texas. Also demand for auto fuel is robust at the moment (it is the Summer driving season after all). Diesel prices remain high, although refineries will be switching over to diesel / heating oil production in a few weeks.

Stocks are flattish this morning ahead of a long weekend. The bond market closes at 2:00 pm. Bonds and MBS are down.

The economy added 57,000 jobs in June, according to the latest Employment Situation Report. The unemployment rate fell to 4.2%, while the labor force participation rate declined form 65.8% to 65.5%. The two month revision was -74,000. Average hourly earnings rose 0.3% MOM and 3.5% YOY.

The labor force fell by roughly 700k, while the number of people with jobs fell by 500k and the number of unemployed fell 200k. So while the unemployment rate fell, it appears that is being driven by people exiting the labor force.

Overall, this is not a great report, and bonds yields are declining slightly. I don’t think this moves the needle for the Fed given that inflation is still above their target, the economy is adding jobs, and the unemployment rate remains historically low.

The manufacturing economy decelerated in June, according to the ISM Manufacturing Report. New orders and production declined, however inflation moved markedly lower. Employment improved.

“In June, U.S. manufacturing activity remained in expansion territory, growing at a slightly slower pace as compared to the month before. Of the five subindexes that make up the PMI^®, the New Orders and Production indexes grew slower as compared to the previous month, the Supplier Deliveries Index slowed at a slower rate, and the Employment and Inventories indexes improved with the latter entering expansion territory.

“In June, 34 percent of the comments were positive and 66 percent negative, with a 1-to-1.9 ratio of positive to negative sentiment. Among negative comments, the Iran war was mentioned in 31 percent and tariffs in 17 percent; 50 percent of the panelists mentioned pricing volatility as an issue for their companies.”

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Hedging tools for mortgage originators:

Non-QM mortgage origination continues to grow and mortgage bankers need a way to hedge their pipeline or book of closed loans awaiting sale. While TBAs are suitable for conforming mortgages, they are not the best fit for non-QM. Eris SOFR Swap futures and Eris Options offer a liquid and margin-friendly way to mitigate risk. Eris Options recently launched and are already seeing widespread appeal, following the largest roll volume in Eris SOFR Swap futures history, with 842,477 contracts trading the week prior.

Exploring Eris Options? click here

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Announced layoffs fell in June, according to the Challenger and Gray Job Cut Report. Job cuts fell 53% from the prior month, and are down about 4% on a YOY basis. AI was the reason for most of the job cuts.

Technology led all sectors: “Tech remains the epicenter of this year’s cuts. AI is the dominant force as companies are restructuring around it, automating roles, and reallocating budgets toward new capabilities. The sector is being reshaped in real time,” said Challenger.

Stocks are lower after closing out a blockbuster quarter. Bonds and MBS are down.

Home prices were flat MOM and rose under 1% YOY according to the Cotality Case Shiller Home Price Index. The hip to be square trade continues, with the Midwest and Northeast posting the biggest gains while the Sunbelt and the West are posting declines. As inflation is running close to 4%, we are seeing home prices fall in real, inflation-adjusted terms.

“April’s figures confirm that U.S. home prices remain essentially flat, with the S&P Cotality Case-Shiller National Home Price Index up a scant 0.8% year over year, just above March’s 0.7% pace… With inflation accelerating to 3.8% in April, U.S. home values have now declined in real terms for an 11th straight month, further eroding inflation-adjusted housing wealth….The affordability pinch remains a key headwind. After dipping below 6% earlier this year, 30-year mortgage rates climbed back to 6.3% in April, keeping financing costs elevated. In this higher-rate environment, home price growth remains constrained, with housing largely treading water in nominal terms and falling in real terms.”

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Hedging tools for mortgage originators:

Non-QM mortgage origination continues to grow and mortgage bankers need a way to hedge their pipeline or book of closed loans awaiting sale. While TBAs are suitable for conforming mortgages, they are not the best fit for non-QM. Eris SOFR Swap futures and Eris Options offer a liquid and margin-friendly way to mitigate risk. Eris Options recently launched and are already seeing widespread appeal, following the largest roll volume in Eris SOFR Swap futures history, with 842,477 contracts trading the week prior.

Exploring Eris Options? click here

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Consumer confidence improved in June according to the Conference Board. Most of these consumer confidence surveys are really just gasoline price surveys, as that appears to be a big driver of confidence in general. The Present Situation index declined, however expectations improved. Consumer views of the labor market darkened.

“Consumer confidence inched up in June as falling oil prices in recent weeks provided some relief to consumer inflation fears,” said Dana M Peterson, Chief Economist, The Conference Board. “Consumer appraisals of current business conditions were slightly more positive compared to last month. However, perceptions of the current labor market softened measurably as the percentage of consumers saying jobs were ‘hard to get’ rose to 22.5%, the highest level since January 2021 (22.8%). Moreover, consumers anticipate little change in the labor market six months from now. This was offset by improving expectations for business conditions and incomes.”

Inflationary expectations eased, with expectations still above 5%. Note that inflation expectations have generally been quite a bit higher than actual inflation rates:

Is that a problem with consumers? Or the way the inflation indices measure inflation?

Job openings improved to 7.6 million, according to the JOLTS job openings. Notable increases were seen in manufacturing, trade transportation & utilities, and professional / business services. Government was flat. Finance fell, as did leisure / hospitality and health care / social assistance. The quits rate was steady at 1.9%.

Mortgage applications were flat last week as purchases increased 1% and refis fell 1%. “Mortgage rates eased slightly last week as oil prices declined. As a result, mortgage applications increased modestly, with an uptick in purchase activity offsetting a smaller decline in refinances,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. “Purchase applications remain ahead of 2025’s pace and have exhibited year-over-year growth for almost three months, as prospective homebuyers are finding opportunities in markets with ample inventory and easing home-price growth. ARM loans accounted for less than 8% of applications, the lowest share since January, as the yield curve continues to flatten with relatively higher short-term rates.”

Stocks are higher as we round out an exceptionally strong quarter for equities. The NASDAQ is up some 20%. Bonds and MBS are flat.

The national delinquency rate rose 15 basis points in May, according to the ICE First Look. Part of this was due to a statistical anomaly. Overall DQ rates rose 4.5% MOM, which is in line with historical seasonal trends.

“While the headline increase in delinquencies may draw attention, the underlying performance picture is stable as delinquencies remain below January 2020 levels,” said Andy Walden, Head of Mortgage and Housing Market Research at ICE. “The rise in early-stage delinquencies and the month-over-month decline in cures were largely driven by the Sunday month-end, which causes many mortgage payments to be processed the following business day. The more important trend to watch remains the continued growth in serious delinquencies and active foreclosures, particularly among FHA loans.”

Long-term delinquency rates and foreclosure starts improved, while prepays slowed.

New York City froze rents for rent-controlled apartments. This won’t affect non-rent controlled apartments, so this should be irrelevant for most DSCR loans. That said, this move demonstrates a hostility to real estate investors that lenders are sure to notice. We do see some DSCR aggregators who won’t lend in the 5 boroughs.

The Supreme Court ruled that Trump cannot fire Fed President Lisa Cook over mortgage fraud allegations. Writing for the majority, Chief Justice John Roberts contended that, if the Trump administration were correct, it “would in effect transform the Federal Reserve’s for-cause protection into at-will employment—an interpretive leap out of step with the statute Congress enacted and our Nation’s tradition of central banking protected from political interference.”

This ruling gives new Fed Chairman Kevin Warsh more leeway to hike rates if need be.

Stocks are higher this morning on good news from the Iranian situation. Bonds and MBS are flat.

This week is relatively busy despite markets being closed on Friday and an early close on Thursday. We will get home price data on Tuesday, with FHFA and Case Shiller along with job openings. The jobs report will be released on Thursday morning, and Kevin Warsh will speak on Wednesday at the ECB Forum and we will get the ISM Manufacturing report along with ADP jobs data.

Consumer sentiment improved in June, driven by falling gasoline prices. “Consumer sentiment confirmed its early-month reading, rising about 10% above May as gas prices moderated. Increases were seen across income, wealth, and political affiliation. Expected business conditions over the next five years surged 16% as consumers’ worries over long-term consequences of the Iran conflict appear to be easing. Still, sentiment remains in unfavorable territory at 13% below the February 2026 reading prior to the start of the Iran conflict, and nearly 20% less than a year ago. The cost of living remains at the forefront of consumers’ minds; for the third straight month, over half of consumers spontaneously mentioned that high prices are weighing down their personal finances.”

Year-ahead inflation expectations moderated to 4.6%, while long term expectations decreased markedly from 3.9% to 3.3%.

Minneapolis Fed President Neel Kashkari says he expects the Fed to hike the Fed Funds rate by 25 basis points this year. “In March, I had penciled in one rate cut by the end of the year. In June, I’ve changed that to one rate hike by the end of the year,” the policymaker said during a panel discussion at the Aspen Ideas Festival. “It’s a pencil, and so we’re going to have to see how the data comes in.”

Kashkari believes that rising energy prices have lifted inflation enough that a hike is probably necessary, and the recent decline probably won’t be enough to forestall that. “The inflation is being driven by supply dynamics, so whether it’s tariffs pushing up the price of goods that we buy from abroad, it’s the fertilizer that’s been disrupted because of the Strait of Hormuz and energy and oil prices from the Strait of Hormuz,” he said. “Then it’s also being driven by massive investment, hundreds of billions of dollars a year into data centers and all of the associated infrastructure that goes with that. Anything that touches those sectors, the prices are skyrocketing on those parts of the economy.”

It looks like this year’s Spring Selling Season was more or less a dud, with the Iran War introducing uncertainty and dampening sentiment. The bright spots in the market are the Bay Area, which is being positively impacted by AI demand and jobs, the Northeast which is part of the hip-to-be-square trade and pockets of the Midwest. The Sun Belt continues to struggle, although that is still where people are choosing to relocate.

Stocks are lower this morning on no real news. Bonds and MBS are up small. Korean stocks sold off 9% overnight.

First quarter GDP rose 2.1% in the third revision, an increase of from the 1.6% second estimate. Imports were revised downward, while investment was increased. Consumer spending was revised downward as well. IT and federal government spending (Iran) were the biggest positive contributors to GDP.

In other economic news, durable goods orders fell 4.5%, while capital goods orders rose 1.6%. The Chicago Fed National Activity Index declined and initial jobless claims fell to 215k.

After the inflation print yesterday, the Fed funds futures became slightly more dovish. The most likely outcome for the year is that the Fed funds rate will be 25 basis points higher. The second most likely outcome is 50 basis points, and the third is no change.

Austan Goolsbee said that inflation is “going the wrong way” while John Williams sees it trending lower and is happy with the current level of interest rates.

Austan Goolsbee said: “You have seen now little bit of improvement on this services inflation, and I’ve been identifying that as something that we would want to see,” Goolsbee said from the trading floor of the Cboe. “But right now, as between the two sides of the Fed’s mandate, the inflation side and the job market side, clearly the problem’s on the inflation side.”

John Williams said: “Given the elevated level of inflation, it is imperative that we restore it to our 2 percent longer-run goal on a sustained basis,” Williams said in remarks at the Crane Money Fund Symposium in Jersey City, New Jersey. “The current stance of monetary policy is well positioned to do that.”

Williams thinks that the effect of tariffs is waning, and if we end up with some sort of durable solution in Iran energy prices will decline. Finally rental inflation seems to be slowing which is positive for lower shelter inflation.

Speaking of shelter inflation, single family rent growth is decelerating according to Cotality. Single family rents increased 1.4% YOY in April, compared to an increase of 2.8% in April of 2025. The hip-to-be-square trade continues, with Chicago seeing 5.5% growth while the Sunbelt is seeing YOY declines.

“Single-family rent growth has shifted into a slower gear, with annual gains continuing to ease even as monthly increases remain in line with typical seasonal patterns. Since Fall 2025, annual rent growth has held within a narrow range of about 1% to 1.5%, signaling that the market has settled into a more stable phase after the sharper deceleration seen earlier,” said Molly Boesel, senior principal economist at Cotality. “Growth continues to diverge by segment and region, with higher-priced rentals still outperforming lower-priced homes. Regionally, Midwestern and Northeastern markets such as Chicago, Philadelphia, and New York are driving stronger gains, with Chicago up 5.5% year over year, while some Sun Belt markets, including Miami and Los Angeles, are flat or declining. With annual gains remaining subdued and fewer markets posting declines, rent growth appears to be holding steady at a low level rather than building momentum going forward.”

Stocks are higher this morning after good numbers from Micron. Bonds and MBS are down small.

Personal incomes rose 0.7% MOM in May, according to BEA. Personal spending increased 0.7% as well. The PCE price index rose 0.4% MOM, while the core (excluding food and energy) rose 0.3%. On a YOY basis, the headline inflation rate rose 4.1%, while the core rose 3.4%. All of these numbers were in line with Street expectations.

The ROAD bill, which passed Congress with overwhelming support, is stuck at Trump’s desk. He wants Congress to pass the Save America Act, which targets election integrity and requires voter ID. The bill has been passed in the House, but remains stuck in the Senate. Democrats are united against voter ID, which means it cannot garner the 60 votes necessary to pass it in the Senate. Trump would like to see it passed under reconciliation, which requires only 51 votes. Reconciliation is supposed to be used only for budget items, not legislation.

The ROAD bill does some good stuff with manufactured homes, but really is mainly a messaging bill which is why it was passed so easily. The Federal government can’t do much more than jawbone local jurisdictions about regulatory burdens, and the institutional investor ban is a feel good measure that will have limited impact on home prices. In fact, the seven-year sale requirement for build-to-rent introduces a constraint on that business, which mathematically means you will get less of it.

New home sales fell 6.8% YOY to a seasonally adjusted annual rate of 580,000 units in May, according to Census. At the end of the month, there were 496,000 homes for sale representing a 10.4 month supply. As we saw in KB’s earnings release, new homes are oversupplied and builders are cutting prices. The median sale price was 424,900, unchanged year-over-year.

As any capital markets guy knows, aggregators have an insatiable appetite for non-QM loans, as every Tom Dick and Harry gets into the business. Non-QM issuance is up some 81% in the first 5 months of 2026, according to banking expert Chris Whalen. DSCR loans are up almost 100%.

One of the truism about markets is that as more players enter a space, more and more marginal investments are made. No-ratio DSCR loans are common, although there is increased scrutiny on collateral. This is an area to watch, especially since the private equity stocks are getting beaten up again as investors fret about Q2 redemptions.