Mortgage News Daily

Stocks went on a tear in Q2 with the S&P up 20% as recently at June 16th. AI-adjacent stocks were up over 50%. Bonds lost ground over the same time. That means the 60/40 stock/bond portfolio targets were thrown way out of whack, at times approaching a 70/30 balance. Gigantic money managers (insurance/pension funds and foreign investment funds) take the last few weeks of a quarter to get that balance back to 60/40. This is accomplished via selling stocks, buying bonds, or both. In today's case it was both, but primarily the "buying bonds" part. If the math is so cut and dried, why can't the market accurately price it in ahead of time (after all, it was being talked about )? Ultimately, rebalancing flows are only a small fraction of trading volume. For instance, the stock selling in early June was viewed as early rebalancing tradeflows. This stuff doesn't adhere to a set schedule, so it's only truly obvious in hindsight. Unfortunately, it doesn't speak to a material shift in bond buying demand going forward--just an accounting adjustment in response to the past.

The PCE price index may be a less timely report than CPI/PPI when it comes to measuring inflation in the U.S., but it's more thorough and has stronger implications for Fed policy. Traders were apparently braced for today's number to be a bit hotter. Bonds rallied moderately after core monthly PCE came in as-expected at 0.3%. Annual inflation is running at 4.1% at the headline level, and 3.4% at the core level (both in line with expectations. Bonds were a few bps higher in yield before the data and are now a few bps lower heading into the 9am hour.

Bonds began the day in modestly weaker territory, but not weak enough to take 10yr yields above the 4.42% technical level. That was a notable development even before considering subsequent movement. The 8:30am PCE inflation data made room for a friendly reversal with modest losses being replaced by modest improvement. Bonds ultimately weren't able to hang onto the stronger levels seen in the morning with gradual selling in the late AM hours and another little pop of weakness following headlines that Iran had attacked a cargo ship in The Strait (not a U.S. ship, or the reaction would likely have been bigger). Bottom line: today failed to place an exclamation point on yesterday's rally, but it still wasn't a question mark. The only caveat is that quarter-end volatility is still a risk between now and Tuesday.

Q2 has been one of the best quarters for stocks going all the way back to the dot com boom, even after the 4-5% pullback in June. This has created a massive quarter-end rebalancing need among money managers and we've seen that random volatility play out in both stocks and bonds over the past few weeks. As the quarter wraps up in the next 3 business days, this could continue to drive volatility, but hopefully/probably less than it did earlier this week. Bonds are starting out roughly unchanged and have little else to focus on thanks to an uneventful economic calendar.

Mortgage rates had a great day yesterday, moving within 0.01% of the lowest levels in more than a month. They dropped just a bit more today and are now officially the lowest they've been since May 14th. Today's improvement was more of an afterthought, but nonetheless helps legitimize yesterday's heavy lifting as something other than a freak coincidence. The only word of caution is that the last few weeks of any given quarter can see elevated volatility in a random pattern due to considerations in the trading world (mortgages are ultimately based on trading levels in the bond market). In terms of nuts and bolts, bonds got today's modest boost after PCE inflation data came in on target. This doesn't seem like something that should spark a reaction, but the "target" is merely a median forecast. Some traders may have been expecting hotter inflation and were thus willing to buy a few bonds when those fears didn't materialize.

Residential construction activity cooled in May, as housing starts and completions both moved lower while building permits edged down only slightly. Last week's Census Bureau data suggests builders are still navigating uneven demand and affordability pressures, with a sharper pullback in starts than in permits.

New home sales weakened further in May, extending the pullback seen over the past several months as elevated mortgage rates and affordability pressures continued to weigh on buyer demand. According to the latest Census Bureau and HUD data, sales of new single-family homes fell to a seasonally adjusted annual rate of 580,000, down 7.3% from April and 6.8% from a year earlier.

Mortgage applications posted a modest increase last week, though overall activity remained subdued by historical standards as borrowing costs held relatively steady. The Mortgage Bankers Association (MBA) reported a 1.0% increase in total application volume on a seasonally adjusted basis for the week ending June 19. Refinance activity provided most of the support for the weekly gain. The Refinance Index increased 3% from the previous week and was 17% higher than the same period one year ago. Purchase demand slipped slightly but continued to hold above year-ago levels. The seasonally adjusted Purchase Index decreased 1% from the prior week, while remaining 3% higher than the same week in 2025. “Mortgage rates changed little over the course of last week, despite the more hawkish tone from the FOMC at its June meeting,” said Mike Fratantoni, MBA’s SVP and chief economist. “Purchase application volume edged slightly lower, while refinance activity posted modest gains. Despite the elevated mortgage rates and overall economic uncertainty, mortgage application volume is running 8 percent above year-ago levels.” Refinance share of mortgage activity increased to 41.5% from 40.3%, while the ARM share declined to 8.2% from 8.5%. Government-backed application shares were mixed. FHA share increased to 17.9% from 17.5%, while VA share decreased to 12.3% from 12.9%. USDA share rose to 0.5% from 0.4%.

Mortgage rates officially hit their lowest level in more than a month yesterday with MND's 30yr fixed index falling to 6.53% from 6.55% on Wednesday. Today was completely unchanged at 6.53%, thus maintaining the lowest level since May 14th, 2026.

Friday ended up offering a boring conclusion to a week that had at least some measure of excitement on Wednesday. Bonds started a hair stronger, lost ground modestly and then rallied to the day's best levels by noon. From there, 10yr yields went perfectly sideways in an ultra narrow range. MBS managed to hang on to just barely positive levels but gave up about an eighth of a point during the time Treasuries were holding steady. Technically, this is underperformance in a vacuum, but in the bigger picture, MBS have been doing just fine in relative terms. As a reminder, next week is 3.5 days thanks to Independence Day observance, and the jobs report will be on Thursday morning.